Tags: manufacturing | housing. economy

Manufacturing Strong as Rest of Economy Weakens

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Tuesday, 22 January 2019 01:57 PM Current | Bio | Archive

INDICATOR: December Existing Home Sales and January Philadelphia Fed NonManufacturing Survey

KEY DATA: Sales (Month): -5.5%; Over-Year: -10.1%; Prices (Over-Year): +2.9%/ Phila Fed (Nonman.): -6.7 points; New Orders: -20.6 points; Expectations: -15.6 points

IN A NUTSHELL: “The manufacturing sector may be holding up but the rest of the economy, especially housing, isn’t.”

WHAT IT MEANS: While the shutdown continues, the economy is being battered. The latest ugly numbers show issues in housing and the non-manufacturing portion of the economy. The National Association of Realtors reported that sales plummeted in December. The drop in demand was seen in three of the four major regions, with only the West posted a gain. For all of 2018, sales fell by 3.1% compared to 2017. Every region declined, led by a sharp drop n the West. The rate of price increases continues to decelerate, though when you look at the year as a total, prices were still up solidly (6.1%).

While manufacturing in the Philadelphia Fed’s region picked up a touch in January, the rest of the economy continued to fade. The nonmanufacturing index is now showing almost no growth after plummeting sharply in December and faltering further in January. New orders, which had been surging as recently as November, are now flat. Hiring, while still occurring, has softened significantly for both full time and part time workers. And compounding the problems, costs are rising faster. All of these issues are not playing well with owners and their optimism about the next six months has been shaken greatly.

MARKETS AND FED POLICY IMPLICATIONS: The economy is slowing, which most economists expected. But the coming down off the sugar high is being compounded by the government shutdown and the trade disagreements and that is causing growth in other countries, not just China, to moderate as well. Last year at this time, there was optimism not just because of the tax cuts but also because we were in the midst of a rare, in-phase worldwide expansion. It seemed that growth was accelerating everywhere. But to quote Inspector Clouseau: “Not anymore!”, and that does not bode well for growth going forward. In economics, nothing is free and that includes government shutdowns and trade wars. There are both real and emotional impacts. In addition to the economic moderation, optimism, not just in the U.S. but around the world is fading. Indeed, the International Monetary Fund revised down its 2019 world growth estimate for the second time in three months. I am not saying we are headed into a recession. We should get through this year unscathed. But there are weaknesses that are emerging that could lead to a further slowdown as we go through the second half of this year and into 2020. How the markets hold up will depend upon investors’ perceptions of the longer-term impact of the government shutdown and the trade war. Currently, the shutdown is viewed as largely a nuisance. That may not be off base, but only as long as it doesn’t go on much longer. However, there is growing concern that the trade situation will create a more lasting worldwide slowdown. And that is something that could affect investment decisions not just in equities but capital spending as well. We are in a period of uncertainty right now. Growth is solid, but for how much longer is unclear.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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We are in a period of uncertainty right now. Growth is solid, but for how much longer is unclear.
manufacturing, housing. economy
Tuesday, 22 January 2019 01:57 PM
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