The ISM manufacturing index figure on Monday was certainly a disappointment, as it fell from May’s 53.5 down to 49.7—certainly larger than expected and below the critical ‘50’ mid-line of the diffusion index.  This is now at its weakest point since the summer of 2009.  Most of the components in the index were individually poor, with the new orders, production and export orders pieces all significantly down.  The employment measure was flat, however, and represented one bright spot in an otherwise dreary report, and the prices paid piece was also down—a good thing in this case—as commodity input costs fell, providing less of headwind for manufacturers.  Also, the level of the index itself, at around 50, is not especially low from a historical standpoint, is on par with about where we are at below 2% GDP growth is nowhere near recession levels. Read more

The Federal Reserve Open Market Committee ended their meeting last week with little new news.  Target rates, at zero to roughly a quarter of a percent, can’t be forced any lower, and, therefore, aren’t as effective at further economic stimulation as they once were.  What the Fed can do (and is doing) is extending ‘Operation Twist,’ which sounds convoluted, but consists of buying long Treasuries back with proceeds gained from selling shorter Treasuries (about $270 billion worth).  The point is to lower interest rates at specific areas on the yield curve where they’ll end up doing the most good—home mortgages, auto loans and capital loans for business equipment tend to fall in the intermediate range, so lower rates here are most stimulative to the economy. Read more

The big number for the week, retail sales, fell in May, by -0.2%, which was along the lines of the median forecast.  The non-auto component was weaker than expected, though, by almost 0.5%.  Additionally, data from earlier recent months was revised downward.  Weakness emerged from several areas, especially those on the ‘fringe’ of spending, such as sporting goods stores, health and personal care.  However, areas like clothing, furniture and electronics were up—which appears odd, but is in line with the inconsistent results from some of these metrics.  We expect more of the same going forward. Read more

The Federal Reserve beige book of regional economic conditions came out this last week, and the conclusion was ‘moderate growth,’ although labor has fallen off a bit.  Almost all of the Fed’s regions (Philadelphia was the exception) were generally showing decent growth.  Echoing these same sentiments, Chairman Bernanke’s remarks to the Joint Economic Committee weren’t earth-shattering in terms of surprises.  He classified current economic growth again as ‘moderate,’ although ‘significant downside risks to the outlook’ remain.  Also, he commented on labor market slowing, which he and other economists believe may be partially due to weather issues earlier on in the year and/or choppiness due to a recovery process as the result of excessive layoffs during the Great Recession.  Read more

As you might have expected, there is a lot to talk about this week.  So much so, that we turned this Weekly Review into a ‘Special Edition’ variety.

In the revised estimate, first quarter GDP growth was adjusted from 2.2% down to 1.9%.  This would probably not be as surprising or impactful in its own right, but coupled with more immediate May data, it made a negative dent on investor sentiment.  The details of the report included higher final sales, while consumer spending was revised down, as was government spending (a big part of this).  While disappointing, this data is now old news.  Second quarter growth is expected to be a bit better, but maybe not dramatically so.  Estimates have remained in the 2.0-3.0% range, although we very well could stay in the lower end of that for the time being. Read more

A larger number of eyes were looking at regional Fed surveys this week, due to the weaker-than-expected Philadelphia Fed number from last week.  The Richmond Fed index fell more than expected, from +14 in April to +4 in May, as shipments fell; however, employment rose strongly.

Durable goods orders were generally in line with consensus for April—up +0.2% on the month.  However, the goods orders less transports (aka ‘key components version’) was weaker than anticipated (down -0.6% versus a forecast +0.8%).  ‘Core’ orders, which excluded non-defensive items and aircraft fell by almost 2%.  These figures are poorer, not dramatically so, but still point to a possible soft spot in economic growth during the past few months. Read more