Mixed Signals Indicate an Uneven Economic Recovery in the U.S.

The Chicago Federal Reserve announced Monday that the country is seeing improved economic conditions, which helped bolster a recovering stock market that remains down for the year. “The Chicago Fed National Activity Index (CFNAI) was +0.28 in January, up from −0.34 in December,” the Federal Reserve announced, indicating that economic growth has improved somewhat in the country, although the reading was still a disappointment to some analysts.

The Chicago Federal Reserve announced Monday that the country is seeing improved economic conditions, which helped bolster a recovering stock market that remains down for the year. “The Chicago Fed National Activity Index (CFNAI) was +0.28 in January, up from −0.34 in December,” the Federal Reserve announced, indicating that economic growth has improved somewhat in the country, although the reading was still a disappointment to some analysts.

Some economists warn that mixed signals from various indicators may be a result of an uneven economic recovery in which some winners and some losers vie for economic control. While the Chicago Federal Reserve sees improvements and national economic activity, including better demand for services and some parts of the industrial sector, a new report sees a dourer situation.

In a new study, Markit Economics said that manufacturing activity had weakened to its lowest level in almost four years. The flash Purchasing Manager Index fell to 51 from 52.7 in the previous month, below expectations of a drop to just 52.

“Manufacturers overwhelmingly linked the slowdown to softer underlying demand patterns in February, while only a small minority cited temporary weather-related disruptions,” Markit said in its report, adding that pessimism is rising in the market “There were reports that weaker business sentiment, alongside uncertainty about the general economic outlook, had encouraged clients to delay spending decisions during the latest survey period,” said Markit.

Additionally, America is finding it harder to rely on exports and foreign demand to prop up growth as cash, constrained by consumes and a dwindling middle class, weakened domestic demand. “The strong dollar and less favourable global economic conditions continued to act as a drag on export sales in February. Reflecting this, new work from abroad decreased at the most marked pace since April 2015,” said Markit in its report.

The report also cautioned that demand has softened to its weakest point since the Global Financial Crisis. “Softer demand patterns contributed to a renewed decline in pressures on operating capacity across the manufacturing sector during February. This was highlighted by the sharpest reduction in backlogs of work since September 2009,” said the report.

While sustained long-term demand growth bolstered manufacturing employment in the last few years, Markit noted a change in this trend could threaten employment rates soon, although job growth seems maintainable in the shorter term. “Input buying fell in February, thereby ending a 27-month period of expansion, while manufacturers’ finished goods inventories built up for the third month running.

Employment growth was maintained in February, although the rate of job creation was one of the weakest seen over the past three years,” said Markit.

Markit chief economist, Chris Williamson, warned that the data from the most recent study might indicate America’s economic recovery may be at its end. “US factories are reporting the worst business conditions for over three years. Every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy,” he said.