The question: is economic growth contracting? Answer: it certainly isn’t picking up any steam.
Last week the Commerce Department released the second revision of first quarter GDP (which was unchanged), showing that the economy grew 1.8% (a slower pace than expected).
But there’s more to the growth story that is disconcerting lately. Factory activity is showing signs of weakness.
The Economic Cycle Research Institute’s indicator of global industrial growth declined to a reading of .1 in March (almost the lowest level since January 1980). The reading suggests that “There’s a downturn in global industrial growth in clear sight”, according to ECRI managing director Lakshman Achuthan.
And there was not-so-good news from a few Fed Districts:
The Philadelphia Fed reported that its manufacturing index dropped sharply to 3.9 this month…from 18.5 last month (and the lowest reading since last October). But even more: the future activity index fell 17 points…after dropping 29 points last month.
The Richmond Fed’s manufacturing index signaled a decline in manufacturing, with a reading of -6, following last month’s 10. And that was brought about by significant declines in capacity utilization and backlog orders.
And then last month, the Chicago Fed national activity index dropped to -.45, the lowest reading since August 2010, with three of four categories posting declines.
Add to that the fact that the Conference Board’s Leading Economic Index posted its first decline since June 2010. And while the Conference Board expects the economy to “likely” continue growing, “the pace of economic activity may be choppy”. The Federal Reserve’s quantitative easing “QE2” is scheduled to end in June. The question: when (if?) the government takes away our crutch, will economic growth sustain itself?
The answer: while the International Monetary Fund believes the U.S. economy is “gaining traction”, it recognizes that “the sluggish pace of the economic recovery calls for supportive macroeconomic policies”. And that includes “continued monetary accommodation”…in other words, more help from the Fed.
The bottom line: the economy is crawling right now, and I don’t expect to be up and running this year.