After a slight improvement the prior week, last week’s economic reports again turned negative, with five of the seven major indicators worsening. (To see all of last week’s reports, see the Latest Economic Reports section below.)

On the manufacturing front, two regional reports by Federal Reserve district banks showed that the manufacturing sector continued to slow in the third quarter. Additionally, while overall durable goods orders rose in July, this was entirely due to the volatile aircraft sector, in which the time from orders to production can be months into the future.

At the same time, the housing market continues to turn down following the temporary surge in activity from the end of the homebuyer tax credit.

The biggest news last week was Friday's revision to second quarter GDP growth (see chart above), which showed that after an advanced estimate of 2.4 percent (see grey bar in chart), the economy grew a slower 1.6 percent in the three months ending in June (see green bar).

The deceleration in second quarter growth was mainly due to an increased trade deficit from higher imports and lower exports.  In other areas (consumer spending, business investment, residential investment and government spending), changes were not significant.

After falling 4.1 percent during the recession (see black line in chart), a little more than two-thirds of the economic decline has been regained during the past year. Still, the economy remains 1.3 percent below the prior peak reached in the fourth quarter of 2007. To put this recovery in historic context, while the upturn to date has been faster than the initial year of growth following both the 1991 and 2001 recessions, which were mild, the current recovery is less than half the initial year of growth following both the 1974-1975 and 1981-1982 recessions.

Dave Huether
Chief Economist
National Association of Manufacturers

Last Week’s Economic Indicators:

Color Code

Positive (improving)

Positive (slowing)

Unchanged

Negative (improving)

Negative (declining)

GDP (Q2, second estimate)

The U.S. economy grew more slowly in the second quarter than the initial estimate of 2.4 percent (annual rate). With more complete data, last week's revised estimate showed that the economy grew at 1.6 percent during the three months ending in June.

Richmond Fed Manufacturing Survey (August)

The Richmond Federal Reserve's manufacturing survey for August showed that activity in the fifth district (MD, VA, WV, NC and SC) expanded for the seventh consecutive month, but at a slower pace than in July.

The seasonally adjusted composite index fell by 5 points to 11. While this is above the growth threshold level of 0, it marks the fourth monthly deceleration after peaking at 41 in April.

While most components of the survey remained in positive territory, they were down from their July levels. This is further evidence that the national recovery is losing momentum.

Kansas City Fed Manufacturing Survey (August)

Manufacturing production in the Federal Reserve's 10th district fell from 14 in July to 0 in August. This marks the first time in a year that the index was not above the growth threshold of 0.

Significant declines in forward-looking components, such as new orders, unfilled orders and capital expenditure plans, signal that further declines in future months is likely.  

Durable Goods Orders (July)

New orders for durable manufactured goods rose by only 0.3 percent in July, the first increase in three months. However, even with this increase, the report shows that manufacturing growth continues to slow. 

The July increase was mainly due to a 76 percent surge in new orders for non-defense aircraft, which are extremely volatile from month to month. In other areas, declines in orders were widespread, including fabricated metals, computers and electronics, machinery and electronic products. 

In most of these industries, the July decline was the second in the past three months. Outside of transportation new orders fell by 3.8 percent in July, the largest drop in 18 months. A significant concern is that new orders for non-defense capital goods excluding aircraft, a good proxy for business investment, fell by 8 percent. 

Existing Home Sales (July)

Sales of existing homes fell much more sharply than expected, signaling that the fragile recovery in housing is fading fast. Home sales declined to 3.83 million annualized units in July, an unprecedented low in the 10-year history of the survey. Sales declined 27.2 percent from June.

It is important to note that the homebuyer tax credit skewed the July report. Although July’s number looks exceptionally weak, most buyers who wanted to qualify for the tax credit would have purchased their home by June.

When averaged over the last three months, sales are running at a nearly 5 million unit pace. This is weak, but still better than the cyclical bottom of 4.6 million units in January 2009.

New Home Sales (July)

New home sales were surprisingly weak in July, and downward revisions to the recent data show that sales fell below the 300,000 mark last month for the first time in the 47-year history of the survey.

The outlook is becoming more and more tenuous for new home sales. Distressed homes are expected to continue to flood the market in the second half of this year. At the same time, solid job creation has yet to materialize. As a result, it appears that after supporting growth in the second quarter with the ending of the homebuyer tax credit, housing will be a significant drag on the economy in the third quarter.

Weekly Jobless Claims

Initial claims for unemployment insurance decreased by 31,000 to 473,000 for the week ending August 21. If sustained going forward, this  could be the beginning of a trend that could ease some of the concerns over the prior week's jump to 504,000 (previously 500,000).

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This Week’s Indicators:

Monday

Personal Income (July)

Texas Manufacturing Survey (August)

Tuesday

Home Prices (June)

Consumer Confidence (August)

Wednesday

Vehicle Sales (August)

Construction Spending (July)

ISM Manufacturing Index (August)

Thursday

Weekly Jobless Claims

Productivity (Q2 revised)

Friday

Employment Situation (August)

ISM Nonmanufacturing Index (August)

Questions or Comments?
Please contact Dave Huether at dhuether@nam.org

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