Now it’s “official” — the US economy has worsened since the start of the year, holding out the prospect of another sickening fall in growth on the already heavy 6.2% annual fall in the December quarter.
Manufacturing, services, car sales, exports, employment, housing and finance are all seeing intensifying slumps: all those hopes late last year for a rebound have gone.
Despite the bounce overnight on the back of a replay of the “China will save us” card for the second time in four months, US markets are still in bear territory, down 20% or more from the start of the year.
The US Federal Reserve’s latest Beige Book, a compendium of comments gathered from its staff in a countrywide survey of business activity (in all 12 Fed districts) was again depressingly grim.
Housing “remained in the doldrums in most areas,” the Fed said, lending fell across the country and credit availability “remained tight.’
Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies ‘remained weak.’
The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010.
The Beige Book said unemployment is up in “all areas, reducing or eliminating upward wage pressures.” Weaker demand is spurring discounting of goods other than fuel and food, the Fed said. As such, “upward price pressures continued to ease across a broad spectrum of final goods and services,” it said.
“Consumer spending remained very weak on balance, albeit with slight firming noted by many districts,” the Fed report said. About half of the districts said consumer demand was slower or “fell significantly” from a year earlier.
Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall:
Conditions weakened somewhat for agricultural producers and substantially for extractors of natural resources, with reduced global demand cited as an underlying determinant in both cases. Markets for residential real estate remained largely stagnant, with only minimal and scattered signs of stabilization emerging in some areas, while demand for commercial real estate weakened significantly.
Reports from banks and other financial institutions indicated further drops in business loan demand, a slight deterioration in credit quality for businesses and households, and continued tight credit availability.
In January, Fed officials downgraded their forecasts for growth this year, seeing a deeper contraction as the credit crunch tightens. The new forecast was for a contraction of 0.5% to 1.3% for 2009, with an upturn later in the year after a tough first quarter. The next Fed meeting is the week after next.
But it’s starting to look that this quarter could be tougher than the December quarter, which was the worst since 1982.
We will get a better idea tomorrow night when US jobs and unemployment data for February is released. A survey overnight said US companies cut 697,000 jobs last month: analysts said the fall in the ADP Employer Services gauge, a survey based on payroll data, was larger than forecast and followed a revised drop of 614,000 in January.
And US service sector (the dominant part of the economy) activity continued to contract last month.
The Institute for Supply Management’s non-manufacturing index fell 1.3 percentage points to 41.6 in February from January. The index is considered both an indicator of the sector’s performance and a measure of the economy as a whole.
The index is off its record low of 37.4, which was set in November. Also positive was that the employment index, traditionally a weak part of the report, rose to 37.3 from 34.4 in January.
But that was due to one sector — the arts, entertainment and recreation industry (clowns, actors and cheer people?) — reporting growth in February. (The 14 other industries tracked contracted, with the biggest declines in wholesale trade, management of companies, and mining.)
And it was a similar story in the European services sector — down, down, down and no real positives in the report for February. The index fell to 39.2 from 423.2 in January. The emerging story at the moment is the way European economic growth is vanishing faster than expected. Will the European central bank cut rates by more than 0.50% at its meeting tonight to try and soften the slump, especially in Germany, Italy and Spain? We’ll wait and see.