Economy is Losing Steam Faster
The economic indicators for the week of July 23 suggest that the economy is losing steam faster. A broad range of important indicators turned more negative. This suggests the economy may be settling at the bottom of its recent decline, rather than turning around.
Perhaps the best good news for the week is that the bad news from the euro zone debt crisis has subsided for the moment.
This Week’s other Good News
Total housing starts increased from 711,000 to 760, 000 in June. The increase occurred in both single family units (539) and multi-family units (221). This is noteworthy because multi-family housing starts have lagged in the recent past.
Industrial production increased from -0.2% to +0.4% in June and capacity utilization increased slightly.
The economy created only 80,000 jobs last month and the unemployment rate remain at 8.2%. However, weekly unemployment insurance claims have averaged about 380,000 over the last few months. Although they have bounced around recently, last week they measured 386,000. This means the economy is at least not experiencing large layoffs.
Auto sales have been one of the brightest spots of the economic recovery. Sales rebounded to 14 million units in June, which was up from 13.7 million units in May.
Average hourly earnings of workers increased .3% in June after decreasing -.1% in May.
News on the Downside
Domestic oil prices are climbing once again, steeply. The price per barrel of oil was $89.20 on July 11, versus $82.40 a barrel in June. This significant increase is not a good sign for consumer expenditures.
Consumer sentiment sustained a big drop from 79.3 in May down to 73.2 in June. This is important because consumer spending accounts for two-thirds of total output and decreases to in confidence usually accompany cutbacks in spending.
Retail expenditures declined further in June to -0.5% from -0.2% in May.
Retail sales also declined significantly in July to -1.1% from 0.2% in June.
The personal savings rate increased to 3.9%, up from the revised level of 3.7% in April. When consumers save more, they spend less, which slows the growth of the economy.
Recent data also shows a significant decrease in the PMI (Purchasing Managers Index) from 53.5 in May to 49.7 in June.
Finally, the Index of Leading Economic Indicators plunged significantly in June to -0.3% from 0.4% in May.
Altogether, these are not good signs that the economy will regain its growth momentum.