Weak Manufacturing, Retail Sales Compound U.S. Woes

Disappointing manufacturing figures and weak retail sales data confirms that America’s economy is struggling, despite cheering from the Federal Reserve.  Manufacturing rose slightly in March, but at a slower pace than in recent months. In addition, slower still since the financial crisis in 2009, according to a new study by Markit Economics.

According to the Markit Flash Purchasing Managers Index, which rose slightly to 51.3 in February, manufacturing activity is “well below the post-crisis average” of 54.1.

Disappointing manufacturing figures and weak retail sales data confirms that America’s economy is struggling, despite cheering from the Federal Reserve.  Manufacturing rose slightly in March, but at a slower pace than in recent months. In addition, slower still since the financial crisis in 2009, according to a new study by Markit Economics.

According to the Markit Flash Purchasing Managers Index, which rose slightly to 51.3 in February, manufacturing activity is “well below the post-crisis average” of 54.1.

The weakness in manufacturing is largely a result of weak demand, indicating Americans are tapped out and struggling to spend to stimulate the economy. “Although manufacturing production growth picked up from the 28-month low recorded in February, the latest rise was only marginal and one of the weakest seen over the past two-and-a-half years,” said Markit Economics in their report.

“Anecdotal evidence from survey respondents suggested that relatively subdued demand conditions and, in some cases, efforts to streamline post-production stocks, had acted as a headwind to output growth in March.”

Partly confirming the findings, Redbook’s study of retail store sales saw a year-over-year growth rate of just 0.6%, weaker than the prior reading. Although Redbook said that they expect retail sales to pick up later in March “thanks to St. Patrick’s Day and this year’s early Easter,” the research firm also acknowledged that mixed commentary indicates weakness in the retail sector.

According to one investment bank research report, rising oil prices globally are also going to hinder consumer spending in the United States. The decline in consumer spending that was witnessed in 2009 after the Global Financial Crisis created a new consumption mindset that emphasized the importance of savings.

As a result, when oil prices fell Americans chose to save more instead of spending more in the economy. Now that oil prices are beginning to rise, they may not choose to save less but may cut down on consumption even further in order to maintain their current savings rates.

This would mean weakness in consumer-dependent sectors, and in the broader consumer-driven American economy.

A Bullish Federal Reserve

With poor manufacturing data and weak retail sales, the U.S. economy looks unable to handle rising interest rates that would cut spending even further. However, Atlanta Federal Reserve President Dennis Lockhart said earlier this week that “There is sufficient momentum evidenced by the economic data to justify” increasing interest rates as early as April.

San Francisco Federal Reserve head John Williams said an interest rate hike in April was likely. “All else equal, assuming everything else is basically the same and the data flow continues the way I hope and expect, then April or June would definitely be potential times to have an increase in interest rates,” he said in an interview.

With higher borrowing costs and more expensive oil around the corner, some economists are expecting the American consumer to be further pinched and cut down on spending even more, thereby stunting economic growth in the country.