As investors continue to wait to see if Europe can agree on a major boost to their rescue fund to backstop sovereign debt and the financial institutions that own it, news on the US economy has turned slightly more positive for September.
In August, economic indicators for industrial production, retail sales and nonfarm payrolls were all registering zero, showing a strange and discouraging coincidence. Although September’s figures are not fabulous, they are coming in slightly better, and could be signaling a shift away from recession.
While this data indicates a slow crawl away from Recession II, consumer’s remain cautious as housing prices in many parts of the US remain considerably off of their pre-recession peak, incomes have declined, many people are still out of work, and few people trust the government to improve the struggling economic situation.
This lack of confidence appears to have its roots in the collapse of the housing market, the defining feature of this downturn, and the lack of a foreseeable rebound in home prices has weighed on consumers, and could prove to be the mitigating factor in the recovery of the US economy.
The US Economy Shows Signs Of Improvement
September saw US consumer prices outside of energy and food rise at the slowest pace seen in six months, while the cost of used automobiles and clothing fell, hinting at contained inflation pressure. In another report released Wednesday, groundbreaking for new homes rose the fastest in a year and a half, with most of the gains made in multi-family construction.
This housing data, in conjunction with CPI data, shows that while the US economy is still muddling along, it is showing a small amount of forward momentum which was not generally anticipated by many analysts. The Federal Reserve may also have a small amount of wiggle room for further monetary easing, even in light of the year-on-year change in core inflation that has already reached 2%.
In August, jobs were revised up 57,000 and September saw 103,000 new jobs created. Although this is considerably lower job growth than is needed to make a real dent in the unemployment rate, it is none the less a positive sign that the economy is moving away from recession.
September also saw retail sales gain 1.1%, while the zero number for August was revised to a three-tenth-of-a-percent increase. Retail sales have been rising 7.6% at an annual rate over the past three months, a number that reflects improving chain-store and car sales.
Consumer spending after inflation in the third-quarter will come in at least 2% as a result of this increase, and while once again not spectacular, shows signs once again of the US economy moving away from the front end of another recession.
After a three-tenths rise in manufacturing in August, manufacturing increased 0.4%, as the production of business equipment rose 1% in September, marking a significant 15.3% annual increase over the last three months. This signals that business are investing their profits in new capital equipment.
The US Economy Faces Some Roadblocks
Although the September data indicates the the US economy is slowly moving away from a new recession, the monthly numbers are volatile, and concerns remain as to the future of what has proven to be a slow and painful recovery. On the front burner is the lack of rising incomes for US workers, as well as concerns over inflation caused by the Federal Reserve’s easy money policy.
Investors and consumers are also concerned over the ability of their elected officials to improve the economic situation, as gridlock and political infighting threatens the recovery process as a whole. As the US economy is consumer spending-driven, confidence in an improving economy is a necessary component in a full recovery.
As confidence in an improving economic situation and housing prices seem to be linked, investors and consumers will be looking to housing data for signs of a sustainable and real improvement in the economic situation. While September data certainly shows signs of improvement, there is still much work to be done before the US economy is back on solid ground.