During the second quarter of 2012, most US indicators disappointed. The relative strength seen in the first quarter faded away during Q2.
Towards the end of July, we will get a first assessment of the economy’s performance in Q2, and growth will likely be significantly lower than the 1.9% growth rate for Q1, which wasn’t too high either.
With that said, having growth in Q2 is better than other countries. However jobs are becoming a concern once again.
Job growth and economy at stall speed
- Weekly claims are higher: During the month of June, we saw claims rising. It was interesting to see that the initial numbers were usually revised to the upside, making a better first impression. Looking at the bigger picture of the 4 week moving average, it has risen to around 386K. Earlier in the year, the average was around 360K. A level of under 400K is considered the be necessary to keep unemployment from rising. The figure could reach 400K during July.
- Non-Farm Payrolls disappoint: After a strong start to the year, with over 200K of jobs gains, the pace fell. The most recent job report was very bad, with only +69K and downwards revisions. Upwards revisions were seen earlier in the year. The jobs report for June will probably be similar enough jobs to keep the unemployment rate rising too much (from the current 8.3%) but not enough for the US to be the global locomotive
- Consumers are wary: The headwinds from Europe don’t necessary have a direct impact on the economy. On the contrary: lower oil prices leave more money in the pockets of Americans. Nevertheless, the scary headlines certainly dampen the mood and offset the lower costs at the pump. Consumer confidence indicators have fallen from highs, retail sales fell short of expectations and also durable goods orders were mixed, at best. In a consumer based economy, less consumption is felt in jobs as well.
- PMIs slide: Purchasing managers’ indices are also getting close to the balance between growth and contraction – close to 50 points. They have been relatively high for quite some time. PMIs are forward looking indicators. The Philly Fed Index, which is one of the earliest numbers available, is negative.
The trend, or actually the lack of it, will likely continue throughout the month of July with more signs that the economy is muddling along.
Housing Bottom seems real
The only really positive sector is housing. This housing bubble brought the US economy down, and it is now safer to say that housing has bottomed out. If this trend continues in July, it could support the US dollar.
The recent figures show that the sector is still suffering from a high foreclose rates that weighs on existing homes, but new ones are being built.
- Prices: Case Schiller’s house price index showed a third consecutive rise in house prices, with the recent rise of 0.7% exceeding expectations.
- New Home Sales rose to 369K in May, a two year high.
- Building permits rose to the highest level since 2008, reaching an annual rate of 780K
- Housing starts rose to 744K in April, the highest since October 2008. They later slid in May to 708K, but these levels are significantly above the post-crisis levels of around 600K.
- Pending home sales leaped by 5.9% in May (although this is a volatile figure).
- Existing Home Sales stood on a level of 4.55 million in May, very similar to the levels seen in April. This is not a new high, and probably reflects the stress in foreclosures.
These cautiously positive figures will likely continue during July, and may be enough to prevent another decision to loosen monetary policy by the Fed. The Fed has more reasons to wait.
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