The Week in Review: Data Points to Weak U.S. Economy
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Several studies this week pointed to worsening economic conditions in the United States.
The Chicago Federal Reserve announced that its National Activity Index rose to just 0.28, slightly better than the contraction in December but still a sign of moribund manufacturing growth, which confirmed an earlier Markit Economics study that showed manufacturing activity was suffering from “softer underlying demand patterns” that were not related to cold weather.
Several studies this week pointed to worsening economic conditions in the United States.
The Chicago Federal Reserve announced that its National Activity Index rose to just 0.28, slightly better than the contraction in December but still a sign of moribund manufacturing growth, which confirmed an earlier Markit Economics study that showed manufacturing activity was suffering from “softer underlying demand patterns” that were not related to cold weather.
Instead, Markit said weak consumer demand in America and a strong dollar created “less favourable global economic conditions” for manufacturers.
According to Markit Economics, the manufacturing Purchasing Managers Index fell to its lowest level since October 2012, at a reading of 51. Any reading above 50 indicates expansion, but the recent reading is the lowest the PMI has fallen since the Global Financial Crisis.
In a separate report, the Kansas City Federal Reserve Composite Index fell to -12, a further fall from -9 in January, as a decline in manufacturing demand in the region worsens amidst sluggish demand from U.S. consumers and from abroad.
In a sign that banks are becoming increasingly cautious as companies struggle to pay back loans, JP Morgan and Wells Fargo announced they would put more money in reserves to cover expected credit defaults from energy companies. At the same time, Dallas Federal Reserve Chairman, Robert Kaplan, said there was a “downside” to tightening monetary policy, as liquidity dries up in the market against high debt levels.
Jobless Claims Up, New Home Sales Weaken
Jobless claims rose this week, rising 10,000 to 272,000, higher than expected. Cash-strapped Americans, who continue to see real estate prices rise, are also pulling back from buying houses.
Total new home sales fell to 494,000 in January, a decline of 9.2% from December and far below expectations. The fall in home sales comes even as mortgage rates continue to decline. Freddie Mac announced 30-year fixed rate mortgages fell to 3.62%, but the lower rates are not coaxing buyers to market.
Low Services Demand, Mixed Durable Goods Data
In a sign that consumers are pulling back from buying, the Markit PMI Services Index, which measures demand for services that are largely driven by domestic demand, fell to contraction, far below an expectation of strong growth. The PMI fell from 53.7 to 49.8, indicating a shrinking of the services sector.
A rare exceptional good note was released by the Census Bureau, who saw durable goods shipments rising in January. Durable goods rose 4.9% in January, far above an expectation of a 2.5% increase. Critics noted, however, that the expansion comes after a 4.6% decline in December, meaning the increase may be a result of exceptional weakness at the end of the year.
