NAM: Monday Economic Report
The U.S. economy grew 2.1 percent at the annual rate in the second quarter, slowing from 3.1 percent growth in the first quarter. Consumer and government spending buoyed growth for the quarter, but drags from business spending and net exports counterbalanced this somewhat. Slowing global growth and trade uncertainties served as a drag on activity, with businesses hesitant to increase spending. Along those lines, nonresidential fixed investment declined 0.6 percent in the second quarter, the first decline since the first quarter of 2016.
The current forecast is for 2.4 percent growth for 2019, down from 2.9 percent in 2018.
The data on manufacturing activity provided mixed results last week. On the positive side, new durable goods orders increased 2.0 percent in June, bouncing back somewhat after declining in three of the prior four months. With that said, the overall data for new durable goods continues to highlight weaknesses in the broader sector, with sales down 1.6 percent over the past 12 months. Excluding transportation, new orders increased a softer-than-desired 0.9 percent.
At the same time, new orders for core capital goods (or nondefense capital goods excluding aircraft)—a proxy for capital spending in the U.S. economy—increased 1.9 percent in June, the strongest monthly gain since February 2008. More importantly, this measure rose to $70.1 billion in June, a new all-time high. On a year-over-year basis, core capital goods orders have risen a modest 2.0 percent.
Meanwhile, the IHS Markit Flash U.S. Manufacturing PMI slowed to a crawl, with the headline index dropping from 50.6 in June to 50.0 in July, the weakest pace since September 2009.
In addition, manufacturing activity in the Kansas City Federal Reserve Bank’s district declined in July for the first time since August 2016, with survey respondents citing softer overall demand and trade uncertainties as top concerns. The storyline was similar in the Richmond Federal Reserve’s region, with its composite index declining at the fastest pace since January 2013. Firms remained positive in both surveys about activity over the next six months, albeit with some easing in the outlook.
Separately, IHS Markit also released survey results for the Eurozone, which contracted for the sixth straight month in July, declining at the fastest pace since December 2012 and led by weaknesses in Germany, which has now contracted in every month so far in 2019, falling at the fastest clip in seven years. As a result, the European Central Bank has signaled that it will cut rates in the months ahead and will likely resume quantitative easing to stimulate growth.
The Federal Open Market Committee is likely to cut short-term rates by 25 basis points at the conclusion of its July 30–31 meeting this week. In addition, analysts will be parsing the Federal Reserve’s statement closely for clues about another possible rate cut in the fall.