Weakness in the U.S. Economy Continues to Grow

After a major decline in economic growth, further indicators of weakness in the U.S. economy are coming from various studies.  The Chicago Purchasing Managers Index (PMI) fell to 50.4 in April, indicating that activity just barely expanded. That was far above the expectation that the index would almost hold its previous reading of 53.6.

After a major decline in economic growth, further indicators of weakness in the U.S. economy are coming from various studies.  The Chicago Purchasing Managers Index (PMI) fell to 50.4 in April, indicating that activity just barely expanded. That was far above the expectation that the index would almost hold its previous reading of 53.6.

The reading is significant, because it comes after the Bureau of Economic Analysis (BEA) saw GDP growth of just 0.5% in the first quarter of 2016, a massive slowdown from 2015’s ending reading of 1.4% in the fourth quarter. Economists had expected less of a slowdown, with 0.7% being the most bearish of mainstream prediction, and 1% being a more common hope. Still, a decline in personal consumption expenditures (PCE) drags down growth, surprising analysts who expected growing employment to liven up the PCE number.

The trend of Americans spending less has confused many economists, as disposable personal income (DPI) is on the rise. According to the BEA, DPI rose 0.4% in March, but PCE rose just 0.1%. The weakness in PCE despite improvements in disposable incomes may indicate Americans’ waning confidence in their job security, the broader economy, their ability to find good, better-paying jobs, and the likelihood of increased prosperity as reasons to spend less, and save more.

That glut of savings has depressed returns on low-risk investments like U.S. government bonds, which return less than 2% for a 10-year note, which is below the Federal Reserve’s target for inflation.

Weak Consumer Sentiment

In addition to weak spending, consumers are feeling less rosy about their futures. A Reuters/University of Michigan study of consumer sentiment saw their index fall to 89 from 89.7, despite expectations that consumer sentiment would rise.

Again, a lack of confidence in their economic security because of low job security, skyrocketing healthcare, housing costs, and growing income inequality may be at the root of the problem.

The survey’s chief economist, Richard Curtain, blames politics, however. “This divergence [in consumer sentiment and economic conditions] may reflect the strength of the consumer relative to the business sectors, and may have been exacerbated by growing uncertainty about the economic policies advocated by various presidential candidates,” he said.

Meanwhile, the Institute for Supply Management’s Chief Economist, Philip Uglow, believes the problem remains an economic one. “This was a disappointing start to the second quarter, with the Barometer barely above the neutral 50 mark in April. Against a backdrop of softer domestic demand and the slowdown abroad, panelists are now more worried about the impact a rate hike might have on business than they were at the same time last year.”