Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year.
This is the first line of the FOMC minutes announced today which shows that, if nothing else, the Fed is the master of understatement.
Today, as if to underscore the Fed’s “somewhat” language, the ISM’s July Manufacturing PMI report noted that:
The PMI registered 49.8 percent, an increase of 0.1 percentage point from June’s reading of 49.7 percent, indicating contraction in the manufacturing sector for the second consecutive month, following 34 consecutive months of expansion. The New Orders Index registered 48 percent, an increase of 0.2 percentage point from June and indicating contraction in new orders for the second consecutive month, but at a slightly slower rate. … A growing number of comments from the panel this month reflect a slowdown in their businesses and general concern over increasing economic uncertainty.
Here are the important highlights of the ISM report:
- ISM’s New Orders Index registered 48 percent in July, which is an increase of 0.2 percentage point when compared to the June reading of 47.8 percent. This represents a contraction in new orders for the second time since April 2009 …
- The Inventories Index registered 49 percent in July, which is 5 percentage points higher than the 44 percent reported in June.
- ISM’s Employment Index registered 52 percent in July, which is 4.6 percentage points lower than the 56.6 percent reported in June.
- ISM’s New Export Orders Index registered 46.5 percent in July, which is 1 percentage point lower than the 47.5 percent reported in June, and represents the second month of contraction in the index since June 2009 …
- ISM’s Imports Index registered 50.5 percent in July, which is 3 percentage points lower than the 53.5 percent reported in June.
The report isn’t all bad, but it reveals a growing weakness in the manufacturing sector.
The Chicago Fed does a national economic activity index:
Improvement in production-related indicators gave a lift to the Chicago Fed’s national activity index which came in at minus 0.15 in June vs May’s revised minus 0.48. A reading below zero suggests that growth in national economic activity is below historical trend. The 3-month average, at minus 0.20 vs a revised in minus 0.38 in May, is under water for the fourth straight month.
The regions are also reporting weaker data (from Econoday):
- ISM’s Chicago PMI reported weaker growth, having declined rather sharply since March of this year (slightly better for July over June).
- The Dallas Fed reported weakness for July when overall general business activity index dropped to minus 13.2 from plus 5.8 in June. The new orders index dropped to 1.4 from 7.9 in June.
- The Kansas City Fed manufacturing survey showed improvement in July, though remained sluggish. The composite index rose to 5 from 3 in June, indicating a marginally stronger growth rate. … New orders improved but remained in negative territory, rising to minus 4 from minus 7.
- The Richmond Fed whose manufacturing index fell to minus 17 to show very deep contraction vs only fractional contraction in June. New orders, the life blood of business, fell to minus 25 vs June’s already very weak minus 7. Backlogs, at minus 27, are extending their run of deep contraction.
- The Philly Fed report on general business conditions, which is the headline index, is at minus 12.9 vs June’s minus 16.6 which was a reading that startled the markets last month. New orders are at minus 6.9 vs June’s minus 18.8 with unfilled orders showing a similar degree of easing contraction.
- The NY Fed reported that the headline index rose more than 5 points to 7.39 to indicate monthly growth in general business conditions. But, weakness in orders points to slowing activity ahead for the New York region’s manufacturing sector and undercuts a rise in the report’s general business conditions headline. New orders fell to minus 2.69 to indicate monthly contraction from what was no more than very soft growth in June at plus 2.18. Unfilled orders are also contracting, at a very steep minus 13.58.
On the consumer side, yesterdays report from the BEA said that real disposable income (DPI) increased 0.3 percent in June, compared with an increase of 0.5 percent in May. Real PCE decreased 0.1 percent, in contrast to an increase of 0.1 percent. And the Fed’s favorite price inflation index actually (PCE Price Index) increased 0.1 percent in June, in contrast to a decrease of 0.2 percent in May. It also showed that consumers were adding to savings as well: the personal saving rate — personal saving as a percentage of DPI — was 4.4% in June, compared with 4.0% in May.
It would be fair to say that people are concerned about the future of the economy. Manufacturing is a key driver of economic growth. We have been commenting on this trend for a long time and it is clear that the economy is at the very least stagnating, and most likely heading for a recession. If QE had worked, why are we seeing systemic weakness?
The “Employment Situation” report comes out Friday. If unemployment continues to increase, will the Fed ignore it?
