Recent data releases have come in below private forecasters’ expectations, indicative of a “rough patch” in the recovery. Some of the recent softness can be tied to transitory factors such as the Japanese earthquake (which caused some supply chain disruptions that mostly impacted …
Recent data releases have come in below private forecasters’ expectations, indicative of a “rough patch” in the recovery. Some of the recent softness can be tied to transitory factors such as the Japanese earthquake (which caused some supply chain disruptions that mostly impacted auto production), unusually turbulent weather (harsh winter weather through February, a rainy April, and devastating tornados in May and June), and a run-up in gasoline prices. However, the underlying momentum appears to have slowed somewhat.
Nonfarm payrolls edged up just 54,000 in May, intensifying concerns that the economic recovery hasn’t been robust enough to stimulate sustainable employment growth. Weak employment growth was not confined to one sector. Goods-producing payrolls rose just 6,000. Private service-providing payrolls followed up strong readings in March (up 179,000) and April (up 213,000) by rising just 80,000 in May. Importantly, May’s pause in payroll growth looks like a clear break from the recent past, as the average gain in nonfarm payrolls over the prior three months was 220,000. On the household side of the report, the unemployment rate edged up from 9.0 percent to 9.1 percent in May, as the number of unemployed persons and the labor force ticked up slightly. The employment-to-population ratio remained at 58.4 percent and is essentially unchanged over the past five months.
Manufacturing sector growth appears to have slowed recently, as the ISM manufacturing diffusion index slipped down from 60.4 to 53.5 in May (its lowest level in a year), and manufacturing production slipped 0.4 percent in April (largely because auto production plummeted 8.9 percent). The year-over-year growth rate in manufacturing output slowed from a relatively robust 5.9 percent in March to 4.7 percent in April, and its near-term (3-month annualized) growth rate slipped down from 6.0 percent to 1.4 percent.
Incoming data on consumption hasn’t exactly been “stellar” either. Personal consumption expenditures were revised down from a gain of 2.6 percent to 2.2 percent in the first quarter. Perhaps more importantly, a huge downward revision to real disposable income (incorporating data from the most recent Quarterly Census of Employment and Wages) has dampened the support for real consumption growth over the next few quarters. Real disposable personal income was revised down from 1.8 percent to 1.1 percent in the fourth quarter, and from 2.9 percent to 0.8 percent in the first quarter (this includes the 2.0 percentage point payroll tax “holiday,” exacerbating the weakness relative to expectations).
Headline inflation measures have been elevated recently, though this is mostly a function of rising gasoline prices (which, according to recent spot prices, have begun to reverse course). Recent trends in underlying inflation have picked up slightly, but from relatively low growth rates. The three-month annualized growth rate in the core PCE rose to 1.9 percent in April, though this is up just 1.0 percent over the past 12 months. Measures of underlying inflation produced by the Federal Reserve Bank of Cleveland—the median and 16% trimmed-mean CPI—are up 1.4 percent and 1.7 percent, respectively, through April. [2011-06-14]