So now its official, the "unusually uncertain" US economy is now showing "widespread signs of a deceleration", according to the Federal Reserve’s latest report.
Not a double dip, but a slowing in the pace of activity, not across the board, but in pockets around the New York area and in and around Chicago, and in parts of the South and West, all areas of industrial and service sector activity.
The news didn’t knock US markets lower, but it has set up a nervous outlook for the next three weeks with major data to be released on home sales (new and existing), housing starts, prices, inflation, retail sales and then the third estimate of second quarter GDP at the end of September.
That also includes the Fed’s next rate meeting on September 21.
The Federal Reserve said in its latest Beige Book that the economy maintained its expansion while showing “widespread signs of a deceleration” in mid-July through to the end of August.
The Beige Book is an anecdotal survey by the 12 regional Fed banks; it is prepared ahead of the next Fed meeting.
The latest Book supports the Fed’s view that while the recovery from the deepest recession in 70 years has cooled, the economy isn’t collapsing into another contraction.
But it is a downgrading of what the previous Beige Book, released in late July said “economic activity has continued to increase, on balance”.
Then two Fed districts reported the economy “generally held steady”, while two others said the pace of growth “had slowed recently”.
This week it was five regional banks reported “economic growth at a moderate pace” and two pointed to “positive developments or net improvements.”
But the remaining five banks said conditions were mixed or decelerating.
Although President Obama has gone on the attack this week, revealing plans for additional stimulus spending aimed at businesses and middle income earners, it won’t do anything because the US Congress is in gridlock ahead of Mid Term polls on November 2 that are expected to see the Democrats lose heavily.
So the increasingly conservative Republicans won’t help Obama or the economy or the unemployed.
But it must be said that with non-financial US companies sitting on a record cash pile estimated at close to $US900 billion and US banks sitting on over $US1.3 trillion in cash as well, a shortage of money isn’t the reason for a lack of investment, or the need for tax incentives.
In fact business investment in the US is quite strong, especially in tech and software related spending.
It’s been one of the few positives in the past year. In fact business investment is up an annualised 25% in the last 9 months (three quarters).
But it is not generating much in the way of new jobs, which remains the biggest problem in the US because that is impacting growth, government revenues, deficits, debt, the depressed housing sector, retail sales, credit and a host of other sectors.
And we can see that in the consumer credit figures for July: they were down another $US3.6 billion (annual rate) in the month, the 17th monthly fall in the past 18 months (January of this year saw a 1% rise to be the exception).
Americans did boost borrowing for car loans in July but this gain was offset by further reductions in the category that includes credit cards.
Borrowing on credit cards fell 6.3% in July after a bigger 7.5% slump in June. It was the 23rd consecutive month’s contraction in credit card credit, a record.
US consumer credit is now at an annual level of $US2.42 trillion, 6.3% below the peak set in July 2008 of $US2.58 trillion (this excludes mortgage credit).
And while the argument goes on about a double dip or whether it’s sluggish growth, here’s a handy check list on the health of the US economy prepared by Canadian economist, Dave Rosenberg.
He’s a gloomster and argues the US is in fact in a depression, but despite that view, it’s a handy list which helps tell us just how rough it is in the US at the moment.
He wrote this week, "Finally, you know it’s a depression when, 33 months after the onset of recession…
- Wages & salaries are still down 3.7% from the prior peak;
- Corporate profits are still down 20% from the peak;
- Real GDP is still down 1.3% from the peak;
- Industrial production is still down 7.2% from the peak;
- Employment is still down 5.5% from the peak;
- Retail sales are still down 4.5% from the peak;
- Manufacturing orders are still down 22.1% from the peak;
- Manufacturing shipments are still down 12.5% from the peak;
- Exports are still down 9.2% from the peak;
- Housing starts are still down 63.5% from the peak;
- New home sales are still down 68.9% from the peak;
- Existing home sales are still down 41.2% from the peak;
- Non-residential construction is still down 35.7% from the peak.
This actually describes the so-called "output gap" which is the difference between the potential productive capacity of an economy and the actual level of activity, as measured by a large handful of indicators.
Many of those points on his list are those indicators.
It’s why US inflation is not a problem,
