Recovery Returns: What You Need to Know About the Economy in July

Despite some continued weakness, the economy actually looked a little better during the month than it did in May and June

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If the U.S. is headed for a double dip, it didn't appear to get there in July. Although the economy remained weak, it actually performed better during the month than it did in June or May. You can see this fairly clearly by considering a broad cross-section of economic reports for July. Unfortunately, not all sectors are expanding together, so we'll likely continue to see sideways motion, instead of positive momentum propelling the recovery confidently forward.

The Basic Analysis

For some time now, I have used the chart below to help provide a qualitative and somewhat quantitative picture of how the economy is performing each month. I have boiled it down to 15 key indicators that help to evaluate several of the most significant sectors of the economy. This month, I expand the analysis broadly. It will now also include a section of additional indicators as well as two quarterly charts that provide some more stats as well as performance for major firms.

But let's start with the usual chart (click on it, and the others, to enlarge):

in review 2011-07.png

The U.S. Consumer

From April through June we saw consumer spending decline, if adjusted for inflation. But in July that changed significantly. The increase was the largest since 2009. Retail sales also grew more rapidly. With spending rising, it should come as no surprise that consumer confidence had also improved. Unfortunately, we know that the modest increase in confidence didn't hold up in August. Instead, it plummeted. This might mean that spending declined again last month, but in July consumers appeared to feel a little better about the economy.


The one sector that can't seem to gain any traction is housing. New home sales continue to decline, now for three months straight. In July existing sales fell as well. Although foreclosure activity declined, this is more likely an indication that banks are continuing to slow down their foreclosure procedures than a cheerful verdict on the status of distressed homeowners.

Business Activity

Although business activity generally expanded in July, it did so at a relatively slower pace. Optimism continued to fall among small business owners, now for five months straight. Although services and manufacturing grew, their rate of expansion has slowed to the point where each is very near contraction. The stock market has also hit a rough patch.


Unfortunately, the labor market isn't showing much progress. Although the unemployment rate declined slightly in July, the result is tough to celebrate. It is mostly due to discouraged workers leaving the labor market, rather than more unemployed Americans finding jobs.

Some Additional Indicators

Below you'll find a new chart, which broadens our discussion of the economy. These results aren't as easy to group into categories of good or bad, but much can still be learned from them.

Addl Comp 2011-07.png

You can see that inflation expanded in July after declining in June. This is actually pretty bad news. We may have seen spending rise in July in large part because consumers felt less pressure from rising prices after the June decline. But if prices continue to rise, then spending might fall again.

Treasury yields remain very low, though you saw a little uptick in short-term Treasuries due to all of the debt ceiling nonsense in late July. That also boosted U.S. CDS spreads. Looking at CDS, the U.K. and Spain had a pretty rough July. But the market perceived Greece's sovereign debt as a little less risky during the month, after its CDS spreads rose significantly in June.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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