A string of reports recently released by the government and private agencies sends mixed signals to Wall Street about the state of the U.S. economic recovery. On the one hand, reports show the consumer and employment sectors of the economy are getting weaker. On the other hand, reports indicate that the housing sector and manufacturing are growing stronger.
Consumer Sector Weakening
Consumer spending, the most significant component of the U.S. Gross Domestic Product (GDP), shows signs of ebbing, according to the retail sales report published by the U.S. Census Bureau last week. July retail sales, a measure of what consumers spend at offline and online stores, dropped by 1.1% from the previous month, led by a decline in automobile purchases.
Then there's a report on consumer confidence released by the Conference Board this week, showing that consumers are losing confidence about current and future economic prospects. Consumer confidence dropped in August to the lowest level since February.
Despite these findings, the Conference Board remains hopeful about the economy. "Consumer confidence retreated in August to its lowest level since February 2021 (95.2)," said Lynn Franco, Senior Director of Economic Indicators at the Conference Board. "Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects. Spending intentions for homes, autos and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead."
Meanwhile, things do not look good in the employment sector. That's where consumers turn for the paycheck that will pay for the things they buy.
Private Sector Job Growth Private Sector Weaker than Expected
The private sector of the U.S. economy created 374,000 private payrolls in August, according to ADP. That's well below the market estimates of 613,000. Most of the new jobs were generated in sectors that benefited by the re-opening of the economy, like leisure and hospitality, which added 201,000 jobs.
Apparently, the private sector job creation machine is slowing down, but that doesn't necessarily indicate weakness on the demand side of the labor market. It might well reflect the inability of employers to hire workers due to supply constraints, such as generous government subsidies and the lack of childcare, which keep people from looking for jobs.
Still, the weak ADP report doesn't bode well for the payroll report for the entire economy, to be released on Friday. (See: August Jobs Report: What to Expect)
However, this situation may change soon if manufacturing continues to grow stronger.
Manufacturing Gets Stronger
The ISM Manufacturing PMI rose to 59.9 in August 2021 from 59.5 in July, ahead of forecasts—a number above 50 indicates that manufacturing is growing. Gains in new orders were the biggest driver of PMI gains, followed by production and inventory gains.
Apparently, the economy's supply side is beginning to catch up with the demand side of the economy. That's a good thing, as a larger supply of goods will ease inflationary concerns, something the Federal Reserve has been closely watching in recent months.
Housing Continues to Surge
Housing remained strong during the pandemic recession and continues to stay strong as the economy recovers. Two reports published last week showed that sales of existing and new homes continue to climb as inventory issues are easing.
Meanwhile, an index monitoring home prices showed that they continue to soar. The S&P CoreLogic Case-Shiller 20-city Home Price Index in the U.S. rose at an annual record of 19.1 in June 2021. That follows an upwardly revised 17.1% increase in May.
Summary and Conclusions
The US recovery is stalling in the consumer and employment sectors, but it continues to grow when it comes to the manufacturing and housing sectors. Further evidence is needed to determine which way the economy goes from here.
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