The Weekend Economic Wrap Up

By April 1, 2007Economy

Business is UpThis past week was not a banner week for the U.S. economy. No foolin. All indications show that the economy remains stuck in low gear, and the possibility that the economy will decelerate in the first quarter from the sluggish pace attained in the fourth quarter is very real.

First, the Conference Board reported last Tuesday that consumer confidence fell by 3.6 percent in March. This was the biggest monthly decline in seven months and it brought consumer confidence down to a four-month low.

Second, the Commerce Department reported that, after plunging 9.3 percent in January, new orders for durable manufactured goods rebounded in last month and increased by 2.5 percent in February. While the news of a rebound in orders was encouraging, the underlying data in the report offers nothing but cold comfort.

The rebound in new orders was driven by the volatile aircraft sector, where new orders of non-defense aircraft and parts surged 88.4 percent. Outside of transportation, new orders edged down 0.1 percent in February, marking the fourth decline in the past five months. New orders for primary metals, machinery and electrical equipment were all down in February for the third time in four months. This signals that the fourth quarter decline in business investment in machinery is carrying over into the first quarter.

Third, the Commerce Department’s final estimate of GDP growth showed that the economy grew at an annual rate of 2.5 percent in the fourth quarter. While this is marginally better than the 2.2 percent preliminary estimate, it nonetheless was not an encouraging report. While trade and consumer spending were real bright spots, the downturn in housing worsened and there was also a decline in business investment.

Fourth, on Friday, the Commerce Department reported that residential construction fell again in February to a 32-month low. This marks the 11th consecutive month that residential investment fell. While this sour news is tempered by the fact that nonresidential construction had its best month in half a year, its clear that the downturn in residential investment is ongoing in the first quarter of the year.

And fifth, the Commerce Department also reported that personal disposable income and spending both decelerated in February. While this is to be expected given the strong gains of the past few months. The fact remains that consumer spending is not growing as rapidly as it did in the fourth quarter. So, when taking this into account along with an ongoing downturn residential investment as well as some weakness in business equipment purchases, it seems clear to me that we will likely see weak growth again in the first quarter of the year.

Coming up next week, the ISM report on Manufacturing comes out on Monday, followed by factory orders on Wednesday and Employment on Friday. Will these reports show more bad news? Stay tuned!