Direction of Economy is Uncertain

For the week of June 18 – 22, a summary of key indicators shows that the economy is still getting weaker. The hope is that the slowdown we are experiencing will be temporary. However, key indicators continue to point to a downward trend in growth.

The cyclical pattern that has characterized the recovery is currently showing a downward trajectory and the bottom is not yet in sight.  However, the search for the bottom continues. Conditions are even more tenuous because of the turmoil in Europe.

Slowing growth in the US, a slowdown of growth in China and the continuing debt crisis in Europe are combining to dampen investor outlook in the US. As a result, corporate investment is down significantly.

Recent data also indicates that consumer spending is cooling off and local governments are still cutting spending, even though their tax revenues have increased.

Combined, these developments suggest tough times are ahead. Fed Chair Bernanke acknowledged as much today in his press conference. His response to the pessimistic economic news is to keep all of his options open and continue the current “operation twist” at least through the end of this year.

In this program, the Fed sells short-term securities and buys long-term securities.  This pushes long term rates lower. The hope is that lower rates will encourage more business investment.

Listed below are the major trends in key economic indicators

New Monthly Payroll Employment

  • May       69,000
  • April       77,000
  • March   143,000

February was the last month of strong job creation, 259,000. The number of jobs created in May was less than one-half of what was expected.

Civilian Unemployment Rate

  • May       8.2%
  • April       8.1%
  • March   8.2%

As the economy slows down, declines in the unemployment rate stall.  Unemployment declined from an average of 8.6% over the last 12 months, but the decline has stalled and last month the rate increased by .1 percentage point.

Initial Claims for Unemployment Insurance

  • June       382,000
  • May       377,000
  • April       384,000

Percent Change in Consumer retail spending

  • May       .4%
  • April       -.2%
  • March   -.2%

Consumer spending accounts for about 70% of GDP. Until recently, this was one of the brightest spots in the economy. However, recent data indicates consumers have cut back on spending. This makes it harder to create new jobs.

Auto and Truck Sales

  • May       13.7 million
  • April       14.4 million
  • March   14.3 million

This has been one of the brightest spots in the economy over the last several months. Unfortunately, the pace of auto sales tapered off between April and May.

Total Housing Starts

  • May                      708,000
  • April                      744,000
  • March                  706,000

The increase in housing starts between March and April was a bright spot in the economy. However, this has tapered off recently. The housing market has a long way to go to fully recover, but it is beginning to show signs of life.

New-Home Sales

Consumer Confidence

  • May       79.3
  • April       76.4
  • March   76.2

Consumers will spend in accordance with their confidence in the economy. Fortunately, they have remained confident despite the slowdown in economic activity.

Durable Goods Orders

  • April                      -.6%
  • March                  -2.1%
  • February              1.5%

One of the best indicators of the strength of the recovery is durable goods orders. When consumers purchase durable goods, businesses must build up inventories. Durable goods expenditures are a sign that consumers feel secure about their income. Lately, durable goods orders have declined.