Over the last week, I've taken a look at the various sectors of the US economy, using the Beige Book and Ben's Congressional statements as the basis of my analysis. Here's are my thoughts:
Employment: why this isn't a daily issue on everybody's tongues is absolutely beyond me. We've been over 8% for a long time, and yet, no one is doing anything. Here's the bigger problem. There are three sectors of employment: government, manufacturing and service. While manufacturing jobs have increased, they've done so at a slow pace. This is part of a longer trend in US manufacturing, where the amount of labor inputs has been declining for the better part of ten years -- a trend which is occurring as a result of automation and an aging population. This means the trend will not abate. So, even if we have an increase in manufacturing employment (which we have), we're not gong to have a big increase. Service sector jobs are increasing and are almost at pre-recession levels. The problem is government jobs, which have been cut by 600,000. I realize that many people think the US government is in a bloated state etc.., but the reality is government provides necessary services to the population -- services like education, policing, fire prevention, public health, etc... As an example, in Texas, we've cut $4 billion from education in the latest legislative session. That will eventually come back and bite the state in the ass, but only after the current administration is out of office and probably dead. These cuts are short-sided and ridicules. Overall government job cuts are a prime reason why the unemployment rate is over 8% still.
Manufacturing: here, we're treading water, as evidenced by the industrial production and capacity utilization charts. While these indicators have stalled over the last few months, we haven't seen an outright decline. We are seeing weakness in some of the regional numbers -- notably the Richmond and Philly figures -- but these numbers are contained in the Atlantic regions (at least, so far). The durable goods numbers have a slight downward trend, but not an absolute decline. The ISM number has only shown one month of contraction -- although the report attributed that contraction to the EU situation which is not getting better. So, again, we're treading water with a slight downward bias, but not an imminent collapse.
Consumer Spending: here, the overall personal consumption expenditures are OK. We see increases in service and non-durable spending, but a declining trend in durable goods purchases. However, as pointed out by Tim Duy, the three month retail sales figures are abysmal -- especially when we take out cars and gasoline purchases. Clearly, the US consumer is concerned about the future, and is cutting back on spending at the retail level. While this is a smaller data set than PCEs, they are incredibly important and need to be watched.
Housing: here, I think we've reached bottom in the overall market. Over the last 6 months, we've seen positive reports from the home builders in their respective 10-Q statements, an increase in their respective stock prices, a stabilization of sales, a decrease in inventory, a continued and fairly disciplined clearing of shadow inventory, a stabilization of prices, and an increase in housing permits. The big problem that will probably prevent this sector from taking off is the employment situation, which obviously decreases the number of buyers.
Services: here the economy is chugging along. This sector is not going to break any growth records soon, but it does appear to be pretty decently in the positive growth mode. However, the latest ISM report's anecdotal section had several statements to the effect that growth was slowing, meaning the slowdown could be hitting this sector as well.
So, we're about where we've been for the last few years -- an economy that is going to grow somewhat positively (0%-2%), bit has just enough internal and external weakness to prevent growth from really taking off.
