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May 04, 2005

FT.com / US - Dark clouds on US economic horizon

Christopher Swann sees unhappiness about the macro outlook:

FT.com / US - Dark clouds on US economic horizon By Christopher Swann in Washington: The administration of President George W. Bush has remained relentlessly optimistic about the outlook for the US economy. Brushing off the recent spate of weak data by arguing that a similar slowdown at the same time last year was followed by a strong resurgence, Carlos Gutierrez, the commerce secretary, told reporters on Monday that there was "a very healthy momentum to the economy." But what initially seemed to be a short-lived "soft patch" much like the blip in growth last spring is now looking a little more ominous. Data released on Monday showed that manufacturing activity slowed further in April, with the Institute for Supply Management index sliding more steeply than expected from 55.2 to 53.3. The index has fallen in eight of the nine previous releases and is creeping perilously close to the 50 mark that separates expansion from contraction. Particularly worrying was a sharp fall in the new orders component of the index to 53.7 from 57.1, which may point to weaker production in coming months. The figures continued a pattern of fairly gloomy economic releases last month. Both the Federal Reserve and private sector economists have long been braced for a slowdown in consumer spending. Even so, evidence of an almost complete stagnation of retail sales in March which rose by just 0.1 per cent, excluding the volatile auto sector came as an unwelcome surprise.

The main concern, however, has been evidence of a slowdown in business investment. This grew by 10.6 per cent last year and was expected to continue to push the economy forward as consumers reined back their spending. Last week's gross domestic product figures showed the growth in overall business investment slowing to 4.7 per cent in the first quarter, from 14.5 per cent in the previous three months. Perhaps more worrying, there was evidence in the durable goods orders figures that this weakness is spilling over into the second quarter. Orders for non-defence capital goods components, excluding aircraft a proxy for business investment fell 4.7 per cent in March following a 2.5 per cent decline a month earlier...

Posted by DeLong at May 4, 2005 12:41 PM