Consumer Spending: The BEA reported that real PCE decreased less than .1% in June, the second month of decline. The big drop occurred in durable goods. This means auto sales, which have dropped for two months. Part of the reason for this is the supply disruption issues in Japan, but there is also concern the consumer is starting to pull back on his spending. Auto sales were up a little over 6%, rebounding from two weak readings the previous two months, which was attributed to the Japanese earthquake an the fallout therefrom. This could lead to a decent rebound in PCEs next month. The BLS reported an increase of 117,000 jobs last month and a decrease in the unemployment rate to 9.1%. While not great, the report was not terrible either, placing in the luke warm camp of economic news.
Manufacturing: The latest ISM number printed a reading of 50.9, which is just above the level of contraction. However, the internals are slowing slowing down and the new orders number was below 50, indicating contraction. Part of this slowdown in US manufacturing is the result of a slowdown overseas. Both India and Brazil have printed an inverted yield curve recently, which is usually a good indicator of an upcoming slowdown and possible recession.
Service: The latest ISM reading printed 52.7, up slightly from the previous month. Both the new orders and employment numbers were positive, although they decreased from the previous month, indicating a slower rate of expansion. 13 industries were showing expansion and only 5 were showing contraction.
The sum total of last weeks' data is an economy that is slowing. However, note that both the manufacturing and service sector are showing growth, albeit it at a slow pace. The employment report tells us that employers are hiring, but reluctantly. But most concerning is the inversion in India's and Brazil's interest rate curve, which is not a good harbinger for their respective economies over the next 12-18 months.
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3 comments:
The first three months of the year I was neutral on the economy and then turned pessimistic last March. I'm beginning to believe that things might be starting to turn around. As you can see, that I am somewhat of a contrarian because public sentiment tends to be a lagging indicator of events.
Of course, Moodys and Fitch still might downgrade the credit rating of US debt. The next downgrade (but not the next one after) would cause a massive sell off on Wall Street and interest rates to rise. Moreover, Europe is facing a debt crisis. Finally, America is undergoing austerity which should slow down economic growth.
On the other hand, corporate balances sheets and profits are strong. Local and state governments have laid off so many people that starting next year there just won't be enough government workers to lay off anymore. Also baby boomers reach retirement age this January. Although an economic crisis in Europe could reduce American exports, this effect could be more than off set by the resulting tumble in oil prices.
Nevertheless, the United States is not out of the woods, yet. A double dip recession is still a possibliy, and if Rick Perry becomes president in 2013, a triple dip recession would be possible as Reaganomics 3.0 is inaugurated.
Esong, I agree. I think what is most encouraging to me is the huge drop in oil. As this blog has mentioned a lot, oil prices played a huge role in the economic slowdown earlier this year. They are down significantly since peaking around $115 or so, which should translate into some lower gas prices soon.
My worry is all the scary headlines from Wall Street become a self fulfilling prophecy. People hear about the bad news, and they hold back on spending, which does in fact, bring about a double dip or slowdown.
I can understand selling off but this manic panic that the market is in right now is hard to understand. The data hasn't been good but it hasn't been let's all jump off a cliff bad either. The TED spread actually went down today, LIBOR isn't going nuts, and most financial indicators aren't showing anything on the same universe as "Lehman" type stress. It's like we've entered the era of the nervous investor that didn't see 2008 coming and never wants to be burned again so he turns into an uber-bear at the first sign of trouble. I'll get in at some bargain prices eventually but I guess I'll wait for more weak hands to bow out.
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