Below is the summary from this week’s Monday Economic Report:
There was growing evidence last week that the global economy is slowing down. According to the latest Markit data, manufacturing activity in Europe and China continues to contract, with falling new orders and employment leading the decline. The European recession is broad-based, with manufacturers in France and Germany also reporting falling production and employment. The continent’s woes—which have been particularly acute as it struggles to contain its sovereign debt crisis—and slowing global economies worldwide have hindered U.S. export growth. While manufactured goods exports continue to grow, the pace so far this year has slowed considerably.
Markit also reported that the U.S. manufacturing sector is growing modestly, with its “flash” Purchasing Managers’ Index (PMI) slightly higher in August. New export orders contracted, but there were small increases in output and new orders. Even with these slight gains, the current PMI level suggests production and employment are growing at a slow pace, and significant headwinds threaten to derail the manufacturing sector moving forward. The latest durable goods data from the U.S. Census Bureau found that, outside of strong gains in motor vehicles and nondefense aircraft, new orders were lower in July.
On the positive side, we continue to see slow but steady gains in the housing market. Both existing and new home sales increased in July, reversing June’s declines. While a number of persistent challenges remain, the longer-term trend for housing has been positive. This mirrors other housing data, including the sharp increase in permits reported a few weeks ago.
This week, we will learn more about the U.S. economy’s growth. On Wednesday, the Federal Reserve will release its Beige Book summarizing conditions in each of its regional districts; meanwhile, the Bureau of Economic Analysis will revise its estimate for real GDP growth in the second quarter. It is not expected to change much from the 1.5 percent estimate provided a few weeks ago. In addition to those data points, surveys of manufacturing activity will be published from the Dallas, Kansas City and Richmond Federal Reserve Banks. Assuming they follow other recent regional surveys, they could show weaker activity. Uncertainties regarding the “fiscal abyss,” weaker demand and a slowing global economy continue to dampen growth.