Another summer slowdown may be inevitable if last month's trends prevail
The already weak recovery appears stuck in a rut. Looking at the economic reports we saw in April, it's difficult not to be reminded of what happened last year at about this time: progress ceased. Since last fall, however, the U.S. experienced modest hiring and brisker business activity. Will we see a repeat of last year's setback this summer?
A broad assessment of fifteen major economic indicators in April provides a sobering verdict (click to enlarge):
There's a great deal less green on this chart that we saw over the past couple of months. In fact, even some of the seemingly positive indicators above come with caveats.
Spending, Saving, and Income
This month, we used real numbers (adjusted for inflation) when looking at consumer spending and income. If you take rising prices into account, the picture looks pretty ugly. Consumer spending barely rose, and income growth has been virtually nonexistent all year. Saving is also declining.
Although retail sales appear to have improved, these numbers do not take inflation into effect. In fact, if you take gasoline and food out of the equation and add in inflation on other goods and services, then retail sales dipped month-over-month.
The reversal from March's steep decline in consumer confidence might also seem like a positive trend for April, but we learned Tuesday morning that this uptick was entirely lost in May as confidence fell farther.
The housing market might appear to have fared relatively well in April: new home sales improved while foreclosure activity declined. But new sales remain at very low levels on a historical basis. Moreover, the decline in foreclosures is said to be mostly attributed to the banks processes slowing -- not a significant drop in delinquencies. Meanwhile, existing sales fell.
The story isn't much better for businesses. Small business optimism and durable goods orders both fell. Although the service and manufacturing sectors continue to improve, their growth slowed in April. The service sector, in particular, is on the verge of worsening in May, if the recent trend continues. One piece of good news for firms was the stock market, which somehow managed to rise by nearly 3% in April. Unfortunately, it isn't faring as well in May.
The hiring picture was cloudy in April. The data above show the labor market worsening. But reports and surveys conflicted during the month. Some showed jobs added. If nothing else, however, we can conclude that a clear, strong employment recovery remains elusive.
An Even Crueler Summer?
Last summer, the situation was a little bit different. The housing market plummeted in large part because the home buyer credit was removed, and the demand for houses died with it. But since then, home prices have been falling, which has caused sales to remain very low. The fiscal problems in Europe also exacerbated economic pessimism at that time. The situation across the pound hasn't improved very much over the past year. But this summer consumers have a new problem to worry about: rising gas prices have put pressure on other spending.
If gas prices remain high or continue to rise in the coming months, then the recovery could take a step back. Economic growth in the first quarter was relatively weak, but we could see an even worse second quarter if the trends we saw in April continue.
Notes/Disclaimers about the matrix above:
- This month we used real consumer spending and income to reflect the effect of inflation. We showed disposable income, as a result. The number of employed Americans also now reflects the household survey from the BLS data, since that survey is broader. We also grouped the indicators in the matrix to form groups of related statistics.
- This is by no means a completely exhaustive list, but it does take into account many important statistics.
- It represents a somewhat quantitative summary, but no weighting has been used to create an economic index, so the reader can decide how important each statistic is for himself or herself.
- There is some overlap.
For anyone who wants to dig deeper into the numbers above, here's a list of posts that covered some of these April indicators:
Image Credit: REUTERS/STR New