More Troubling Economic News
Another round of economic statistics suggests that we're unlikely to see any real improvement between now and Election Day.
The economic news has not been good of late. It started when we got a revision to the First Quarter GDP to a level well below forecast levels, and well below where it needs to be to create sustained job growth. Around the same time those numbers came out, we also learned that planned layoffs had increased by 53% in the month of May alone. Overseas, there were signs that Europe’s economy is contracting. In China, there are signs that the years of strong growth may be coming to an end. At the start of the Second Quarter, we learned that April’s Factory Orders took an unexpected drop, signalling more slowing down to come in May and June. Then we got an incredibly weak May jobs report that showed only 69,000 net jobs (of which some 83,000 were from the private sector). Now, as we head toward the end of the month and, soon thereafter, the release of the jobs report for the month of June, there are signs on the horizon that seem to indicate that the economic slowdown we saw at the end of the 2nd Quarter is continuing this month, which poses real risks for the economy itself and for the political fortunes of President Obama.
The big news of the morning is the Labor Departments initial jobless claims report, which went down slightly from last week but has now hit the hit the highest weekly average since December after several months in which it seemed to be moving in the opposite direction:
The number of Americans filing new claims for unemployment benefits was little changed last week, according to government data on Thursday that suggested the labor market was struggling to regain momentum.
Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 387,000, the Labor Department said. The prior week’s figure was revised up to 389,000 from the previously reported 386,000.
Economists polled by Reuters had forecast claims falling to 380,000 last week. The four-week moving average for new claims, considered a better measure of labor market trends, increased 3,500 to 386,250 — the highest level since early December.
What this suggests is that the seeming progress had been made in the job market in the early part of 2012 has essentially been reversed completely, and we’re back in the same position we were in at the end of last year. It also doesn’t bode well for job growth over the short or medium term, and suggests that we’re likely to see another disappointing jobs report coming up next month. Indeed, yesterday, the Federal Reserve Board joined nearly every Wall Street analyst in downgrading its economic forecasts for the coming year:
WASHINGTON — The Federal Reserve on Wednesday sharply lowered its economic growth forecasts through 2014 and projected that unemployment could remain above 8% through next year.
The central bank released the new forecasts ahead of Chairman Ben S. Bernanke’s quarterly news conference. Earlier, the Federal Open Market Committee voted to extend a program designed to lower long-term interest rates as it tries to respond to slowing growth in the U.S. and around world.
The program, called Operation Twist, was set to end on June 30 but now will continue through the end of the year as the Fed warned of a slowdown in the growth of jobs and household spending.
Growth in total economic output this year will be between 1.9% and 2.4%, much lower than the range of 2.4% to 2.9% the Fed projected in April. Growth will pick up in 2013, but the Fed’s central tendency forecast is for 2.2% to 2.8% annual growth in gross domestic product, below the 2.7% to 3.1% forecast the central bank made in April.
Not until 2014 would annual growth top 3%, the Fed said. Annualized growth was 1.9% in the first quarter of this year.
The unemployment rate will be 8% to 8.2% in 2012, the Fed projected, little changed from May’s rate of 8.2%. The Fed had forecast in April that unemployment this year would be 7.8% to 8%. Unemployment is forecast to be between 7.5% and 8% in 2013, higher than the 7.3% to 7.7% range forecast in April.
James Pethokoukis, meanwhile, points to another Labor Department report that leads to some troubling possibilities for the economy:
The government’s April Job Opening and Labor Turnover report was, in the words of JPMorgan economists, “soft, lending some credence to the view that the April-May slowing seen in the payroll report was real and not a statistical fluke.”
– The number of job openings in April fell 325,000 to 3.416 million. That’s the lowest level since November of last year.
- But here is the real red flag. Private job openings fell 282,000 — the most since early 2009 — to 3.080 million. Early 2009, if you recall, saw the economy just hemorrhaging jobs.
– One bright spot in this report in March was the rising in people quitting their jobs, showing some confidence in the economy. But that “completely reversed itself in April.”
– Now layoffs, thank goodness, continue to be low, evidence that the problem here is a lack of hiring rather than lots of firing. Hires fell 159,000 last month to 3.882 million, the lowest since last July and well below even the weakest month of the prior expansion.
Bottom line: ”The weakness in this report, particularly in the job openings figure, serves as a reminder that the labor market remains far from healthy.”
Some might be tempted to respond to that last quote with a sarcasm-laden “Thank You, Captain Obvious” but the numbers suggest that we are in danger of not just slow job growth but actually losing jobs if the economy doesn’t pick up some time soon. In that same regard, Steven Hayward points to an article in The Wall Street Journal that sees hints of an economic downturn in reports released by America’s largest next-day shipping company:
Air-freight competitorUTi Worldwide, which recently reported results, sounded a note of caution about business in coming months. And April data on volumes from FedEx, the latest available, suggest a 9% drop in international cargo through its main hub in Memphis.
All this hints that fourth-quarter results for the period ended in May, due Tuesday, could be accompanied by cautious guidance for the next fiscal year. Analysts’ consensus estimate calls for earnings of $1.89 a share for the fourth quarter, versus $1.75 a year earlier. The estimate has slipped by about five cents a share since March.
A glance at sales and income from previous downturns shows how sensitive FedEx is to economic growth. Not only is FedEx the kind of company that catches a cold when the world economy merely sneezes. It also is the type that gets the sniffles when data still give the economy a clean bill of health. That bellwether status is what makes FedEx’s earnings report so interesting, even to nonshareholders.
FedEx is nothing if not flexible, though. Earlier this month, it decided to accelerate the retirement of 24 older aircraft, resulting in a one-time charge. They were less efficient than several new Boeing Co. planes the company has on order. But reducing the number of planes it has in reserve, even as fuel prices are falling, also suggests FedEx doesn’t anticipate needing the extra capacity.
Though the information is limited, freight trends suggest a clear slowdown in Europe and a nascent one in Asia may even be accompanied by braking in the domestic market. Analysts at Credit Suisse note that April freight volumes in the U.S. fell by 11% from March; typically the month sees an about 4% decline
The Journal is also reporting that steelmakers are reporting that falling demand is leading to the worst forecast for the steel industry in four years, another suggesting that economic activity as a whole is slowing down. To be fair, much of the decline seems to be coming from Europe and Asia and it’s possible that the U.S. economy will be spared the worst of what’s happening right now. It’s unlikely, though, that we’d be able to avoid it completely, and it’s highly unlikely that our economy would be able to boom while the rest of the world is grinding to a halt once again. What this all suggests then is that we’re likely to see several more months of slow economic growth, and anemic progress on jobs, all the way right up to the election. Obviously, this isn’t the situation that President Obama’s campaign would prefer.