Last week was a big week for data on the US economy with reports out on the overall economy, the housing market, consumer spending and manufacturing. Financial markets generally saw the data, especially those on manufacturing, as negative on the economy. However, at the end of it all, the data largely confirmed that there is a slowdown in the US economy, but not necessarily anything more.
On 29 November, the Commerce Department released a revised report on US gross domestic product that showed that the economy grew at a 2.2 percent annual rate in the third quarter, higher than the advance estimate of 1.6 percent. However, because much of the upward revision was due to inventory growth, reactions from economists to the report were mostly ambivalent.
Perhaps of greater significance were data for the fourth quarter.
The housing market continued to show weakness, but the data were contradictory. According to the National Association of Realtors, existing home sales were up in October but prices were down. On the other hand, according to the Commerce Department, new homes sales were down in October but prices were up. The Commerce Department also reported that construction spending in October fell 1.0 percent.
Meanwhile, consumer spending appears to be holding up relatively well. On 30 November, the Commerce Department reported that personal consumption expenditures rose 0.2 percent in October. This was particularly impressive as the personal consumption expenditures price index fell 0.2 percent that month. Having said that, the Conference Board did report last week that its index of consumer confidence fell to 102.9 in November from 105.1 in October.
However, it was manufacturing that saw most of the bad news. On 28 November, the Commerce Department had reported that new orders for durable goods fell 8.3 percent in October, the biggest drop since July 2000. Despite the hopes of many economists, business spending did not help much as orders for non-defense capital goods excluding aircraft fell 5.1 percent.
30 November then saw the National Association of Purchasing Management-Chicago report that its business barometer fell to 49.9 in November -- the lowest since April 2003 -- from 53.5 in October, marking its first contraction in more than three years.
And confirming the contraction at the national level, the next day saw the Institute for Supply Management (ISM) report that the PMI, its composite index measuring manufacturing activity, dropped to 49.5 in November from 51.2 in October.
Treasury yields fell over the week, especially on Thursday and Friday, the days when the Chicago and ISM manufacturing reports were released respectively. Stocks were flat on Thursday but fell on Friday.
So how bad a shape is the US economy in based on the ISM data? Actually, probably no worse than what many economists already think.
According to the ISM release, a reading above 50 indicates that the manufacturing economy is generally expanding while a reading below 50 indicates that it is generally contracting.
The threshold for the overall economy, however, is slightly different. To quote from the ISM release:
A PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the November PMI indicates that the overall economy is continuing to grow while the manufacturing sector has now entered a period of contraction. "The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (54.1 percent) corresponds to a 4.1 percent increase in real gross domestic product (GDP). In addition, if the PMI for November (49.5 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."
In other words, the PMI is saying that the US economy is likely to grow at about the same rate as it did in the third quarter, not exactly an earth-shaking revelation.
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