A Dismal Week for the Economy
Once in a while I have to put the leisure economy aside and write about the actual economy–the one we have now, and the one that the markets have decided is so miserable in the United States that they have spent the last week selling off on. In truth, the leisure economy has a lot to do with the basic economy. The better is the latter, the sooner will a lot of people–make that boomers–get to the former. The worse is the latter, the more people that will get left behind, maybe for a long time.
This week has been worse rather than better. True dismal scientist that I am, I don’t think that the worst is behind us.
The U.S. housing market is a mess, and to believe that it will not spread more requires far more in the way of ostrich-tendencies than I possess. Here’s a handful of dismal-statistics that were released over the past few days: U.S. existing sales have hit a seven-year low, new home prices have dipped more than 2 percent over the past year, applications for new mortgages were down last week, and so were applications to re-finance homes. Do you see a pattern here? The residential sector is in recession, and there are ominous signs from other parts of the U.S. economy.
The worst indicator of the week, in my view, was on business investment. Excluding transportation equipment (which was boosted by a spurt in orders by Boeing) durable goods orders (basically orders for things that last a long time) slipped by 0.5 percent in June. The snappy-sounding non-defense-capital-goods-orders-excluding-aircraft, which is basically the least volatile category of all, and a proxy of business investment, was down by 0.7 percent in June, the second month in a row in which it has declined.
True, there were a couple of bright spots on the week. Boosted by exports (which in turn were helped by a weak U.S. dollar), U.S. gross domestic product rose by 3.4 percent in the second quarter. That was smartly higher than a 0.6 percent gain in the first quarter, and a bit higher than market expectations. Still, one of the weakest areas in the whole report was consumer spending, which was up a teensy 1.3 percent during the quarter. That’s it’s weakest showing since early 2005.
A lot of the analysts were putting-a-happy-face on the whole thing and talking about a recovery later in the year. That may well happen, but it does not take away from the fact that a lot of portfolios get jolted when the stock market dives, oh, 400 points in one day which happened a couple of times this week. As for U.S. treasuries, they rallied so much that anyone would think that there was a economic slowdown ahead.
Next week we get the U.S. employment report for July. So far, that side of things has held up pretty well, and here’s hoping that job growth continued to be healthy. Consumers may hold it together when all they have to worry about is higher gas prices or a drop in the value of their homes or the prospect of re-negotiating their mortgage at a higher rate than they did previously. If they think their jobs are in danger, however, the whole house of cards could come tumbling down.
