US economic growth continues to slow. Last Wednesday, I observed, “All the unsettling headlines coming out of Europe and the uncertainty about the November elections seem to be weighing heavily on the US economy.” Maybe we’ll get a vacation from the bad news out of Europe for the rest of the summer now that European leaders have managed to kick the can down the road over there yet again. They’ve certainly ruined the summer vacations of lots of their subordinates, who have been tasked with working out the details of the latest Grand Plan.
There is no longer any uncertainty about what the Supreme Court will do with ObamaCare. It remains the law of the land under one of the most convoluted decisions in Scotus history. However, that decision only exacerbates the uncertainty about the outcome of the November presidential and congressional elections. The outcome of the fiscal cliff and the monetary ledge are also contributing to uncertainty about the economic outlook.
For now, the latest batch of US economic indicators is decidedly weak. It’s the third summer soft patch in a row. It’s getting harder to blame it on a distortion of the seasonal pattern caused by unseasonably mild weather earlier this year, thus boosting growth during the winter and dampening it in the spring. Let’s review the latest batch of downbeat indicators:
(1) Initial unemployment claims. Over the past several weeks, jobless claims have tended to fall after the previous week's figure was revised higher. It’s been one step forward and one step back with eight consecutive weekly upward revisions and 20 in the last 21 weeks. The result has been that initial unemployment claims continue to hover just south of 400,000. Earlier this year, they seemed to be heading down to 350,000.
(2) Durable goods orders. Over the past three months through May, nondefense capital goods orders excluding aircraft fell 7.6% (saar) compared to the previous three-month period. That’s the first decline since the previous recession. The recent weakness has been widespread.
(3) Regional business surveys. All five of the regional Fed surveys we track now have June results. Only Dallas showed some strength. The overall business indexes were down for Kansas City, New York, Philadelphia, and Richmond. The average of the five fell from a recent peak of 16.1 during February to 3.8 in May and to -1.7 in June. The average for the five Fed regional new orders indexes fell from a recent peak of 11.2 during February to 3.5 in May and -5.5 in June. The good news is that the average employment index remained north of zero, but it fell from 10.3 in May to 7.8 in June.
(4) Consumer sentiment. The Thomson Reuters/University of Michigan final index of sentiment fell from 79.3 in May to 73.2 last month, the lowest level this year. The Michigan survey’s index of current conditions asks Americans whether they’re better off than they were a year ago and whether they think it’s a good time to buy big-ticket items like cars. In June that measure dropped to 81.5 from 87.2. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped sharply to 67.8 from 74.3, which was the highest since July 2007.
(5) Consumer spending. Personal spending fell less than 0.1% in May, the first decline since last November. April’s preliminary 0.3% increase in spending was revised down to a scant 0.1% gain. And spending in March was revised down to a 0.1% increase from 0.2%.
Today's Morning Briefing: Encore! Encore! (1) Is 19 the charm? (2) Endgame averted again. (3) Is the correction over? Will the summer rally last? (4) Walk in the park, but beware of the muggers. (5) Watch out for that cliff! (6) A two-page memo kicks the can down the road in Europe. (7) From “nein” to “jawohl” in one long night. (8) Bad for Bunds. (9) Shaving our GDP forecast. (10) A bunch of weak US numbers. (More for subscribers.)