Tuesday, January 23, 2018

Economic outlook is cautious even with spending up


Monday, May 3, 2010
by MARTIN CRUTSINGER

One sector that's helping drive the recovery is manufacturing. Factory activity in April grew at the fastest pace in nearly six years, according to the Institute for Supply Management, representing purchasing executives. Its manufacturing index rose to 60.4 in April from 59.6 in March — the ninth straight month of growth. A level above 50 indicates expansion.
One sector that's helping drive the recovery is manufacturing. Factory activity in April grew at the fastest pace in nearly six years, according to the Institute for Supply Management, representing purchasing executives. Its manufacturing index rose to 60.4 in April from 59.6 in March — the ninth straight month of growth. A level above 50 indicates expansion.

WASHINGTON — Factories are churning out more goods. Consumers are spending. Government aid is fueling construction activity. But stagnant pay and weak hiring will likely restrain the economic rebound in coming months.

That cautionary picture emerged from a series of economic reports Monday.

Consumers stepped up their spending in March by the largest amount in five months. Yet the increase was financed out of savings. Incomes rose only slightly.

Unless employers boost pay and ramp up hiring, economists say consumer spending will likely taper off and dampen the recovery.

The construction industry remains a concern, too. Industry spending rose 0.2 percent in March, the first increase in five months, Commerce said. But all the strength came from government activity — much of it related to temporary stimulus money that's expected to run out soon. By contrast, construction by the private sector fell to the lowest level in a decade.

One sector that's helping drive the recovery is manufacturing. Factory activity in April grew at the fastest pace in nearly six years, according to the Institute for Supply Management, representing purchasing executives. Its manufacturing index rose to 60.4 in April from 59.6 in March — the ninth straight month of growth. A level above 50 indicates expansion.

Economists caution that the overall picture is clouded by a weak jobs picture. A report Friday is expected to show no change in the nation's 9.7 percent unemployment rate.

"The consumer needs job creation and income growth to pick up significantly to maintain the momentum in consumer spending and we look to Friday's employment report for further evidence of slow improvement in labor market conditions," analysts for RDQ Economics wrote Monday in a research report.

The government reported Friday that the broadest measure of economic activity, the gross domestic product, grew at an annual rate of 3.2 percent in the January-March period. That marked the third quarterly increase since last summer. Most economists believe the recession, which began in December 2007, probably ended in either June or July or last year.

The healthy first quarter GDP gain was driven by a big rebound in consumer spending, which powered ahead at an annual rate of 3.6 percent, the best showing in three years. But economists said spending gains of that size can't be maintained without greater income and job growth.

Commerce said consumer spending rose 0.6 percent in March, matching economists' expectations. But personal incomes edged up just 0.3 percent, raising new worries about lackluster income growth. At the same time, the personal savings rate fell to 2.7 percent of after-tax incomes. It's the lowest level since September 2008.

High unemployment is likely to continue to keep a lid on income growth. Unless businesses boost hiring, households won't be able to support a high level of consumer spending, which accounts for 70 percent of economic activity. That could weaken the economic rebound.

The 0.3 percent rise in incomes in March followed a tiny 0.1 percent increase in February and a 0.4 percent advance in January. The 0.6 percent rise in consumer spending, which matched last October's gain, followed a 0.5 percent rise in February and a 0.3 percent January increase.

Disposable, or after-tax incomes, rose by 0.3 percent in March. The combination of a rise in spending and a scant gain in income left the personal savings rate at 2.7 percent in March. That was down from 3 percent in February. And it was the lowest savings rate since it stood at 2.2 percent in September 2008.

During the housing boom, the annual savings rate had fallen as low as 1.7 percent in 2007. Consumers felt more wealthy as their home values soared and felt less of a need to save.

But once housing sales and prices collapsed, helping lead to the recession, Americans began saving more. The savings rate rose to 4.3 percent in 2009, the highest level in a decade.

In a new Associated Press Economy Survey, two-thirds of the 44 economists surveyed said they believed the last recession had created a "new frugality" among consumers that will outlive the recession. A desire to save more could also act as a drag on spending going forward.

An inflation gauge tied to consumer spending showed a slight 0.1 percent rise in March and the same 0.1 percent increase excluding food and energy. Over the past 12 months, prices excluding food and energy are up by just 1.3 percent, well within the Federal Reserve's comfort zone for keeping short-term rates at record lows.

The Trucker staff can be reached for comment at editor@thetrucker.com.

 

Video Sponsors