The epoch times

New data suggests US economy stuck in ‘stagnation’.

Is ‍the US Economy Heading Towards Stagnation?

This summer, U.S. financial markets have‍ largely dismissed recession fears, pointing to a treasure trove of data that depicts the national economy ⁢in‌ a positive ⁤light. But ⁣fresh figures indicate that the country could be facing a “stagnation” ‌point.

The S&P Global’s flash ⁢Composite ​Purchasing Managers’ Index (PMI), a barometer of ‍business activity in the manufacturing and services sectors, eased ‌to ​50.4 in August, down from 52 in July and below the consensus estimate of 52.

The S&P Global Manufacturing PMI⁤ deepened into contraction territory, coming in at 47 this month, down from 49 ​in July. The Services PMI also slipped from 52.3 to 51.

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Total new orders⁤ tumbled, the pace⁢ of job creation slowed, input cost inflation re-accelerated, ⁣and business outlook improved, according⁤ to the S&P Global data.

“A near-stalling of business activity in August raises doubts ‍over the strength of US economic growth in the third quarter,” said Chris Williamson, the chief business economist ‍at S&P Global ​Market Intelligence, in a report. “The⁤ survey shows ‍that the service sector-led acceleration of ⁢growth in the ‍second quarter has faded,​ accompanied by a further fall in ​factory output.”

Orders ⁤of ‍major U.S. manufactured goods supported concerns that the economy could be grappling with‌ a stagnating environment in the middle of ​the third quarter.

According to the Census Bureau, durable goods orders plunged by 5.2 percent in​ July, down from a downwardly revised 4.4‍ percent in June and‍ worse than the market projection of ‌negative 4 percent. The final print⁢ represented the‌ sharpest⁣ drop since April 2020.

Orders for transport equipment crashed by 14.3 percent, while ⁤orders for non-defense capital goods, excluding aircraft, increased by 0.1 percent.

“On a more downbeat note, shipments of ⁤core capital goods orders – which are used to help ‍estimate business investment spending in the GDP report –⁢ slid 1.1% in July, pointing to a sharp slowdown in business investment spending in‌ the third quarter GDP report,” said Scott Anderson, the chief ‌economist at Bank of the West Economics.

All this is “pointing to U.S. economic activity softening to near stagnation⁣ in the middle of the third quarter,” Mr. Anderson added in a ‍separate note.

Tightening Effects

Is the‌ economy beginning⁢ to feel ‍the effects of higher interest rates?

Since ⁢monetary policy functions with a lag, Fed officials ‌and a chorus of economists warned that it could take ⁢time for the country to experience⁣ a climate of a 5 percent fed funds rate.

“The⁣ US economy is likely​ to experience a‍ winter recession,” wrote Carsten Brzeski,⁤ the global ​head of macro at ING, ⁢in a note.

Despite the disappointing data, the Atlanta Fed Bank’s GDPNow model estimate for the July-to-September period was revised up from ⁣5.8 percent to 5.9 percent.

Next ‌week, critical economic data monitored⁢ by the central ​bank ⁤will be released, including ‌the personal consumption expenditure (PCE) price index and the August jobs report.

The Cleveland Fed Bank’s ​Inflation Nowcasting model suggests a 3.6 percent annual PCE and a 4 percent core PCE, which strips the volatile energy and food cycles. Meanwhile, early forecasts suggest the U.S. labor market created 180,000 new jobs.

While price inflation has drifted into a 3 percent to 4 percent territory, the Cleveland Fed’s Nowcast forecasts an uptick in the ​consumer price index (CPI) this month: 3.8 percent year-over-year and 0.8 percent month-over-month.

Treasury yields have also been soaring this month, indicating that investors expect a ⁣resuscitation‌ in⁣ inflation. The 2-year Treasury yield is above 5 percent, while‍ the benchmark 10-year yield is hovering around its highest level in 16 ⁣years‌ at about 4.25 percent.

“The increase in market⁢ interest rates directly contrasts with market expectations that the Federal Reserve‌ is close to the ‌end of its⁢ tightening cycle,” said John Lynch, ​the‌ chief⁤ investment officer at Comerica Wealth Management, in‍ a note. “Rising​ real yields pose risks ⁤to economic and market activity, with the attendant spending, investment​ and⁤ valuation risks for consumers, businesses and investors.”

But it is not only renewed business and consumer ‍prices that the Federal Reserve may need to worry about. New realities are beginning to seep into the⁣ world’s largest economy.

The Federal Reserve building in Washington on Sept. ⁢19, ⁣2017. (Samira Bouaou/The Epoch Times)

Recent research from the San‍ Francisco Fed found that household pandemic-era excessive savings ‍could⁣ be exhausted before the‌ year is over.

Total credit card debt has exceeded $1 trillion for the first time‍ on ⁤record.

The housing market is enduring a trifecta of ‍challenges: sky-high mortgage rates, tumbling existing ⁢home sales,​ and below-trend new housing construction activity.

In addition, there ⁤are signs‍ that‍ the red-hot labor⁢ market is beginning to cool⁢ down.

“In July, weak new orders, high⁤ interest rates,‌ a dip in consumer perceptions of the ‍outlook for business conditions, and decreasing hours worked in manufacturing fueled the leading indicator’s 0.4 percent decline,” ⁣said Justyna Zabinska-La Monica, the⁣ senior manager of business cycle​ indicators⁤ at The⁢ Conference‍ Board,⁢ in a ‌ report ⁣ on its widely watched leading ⁤economics⁤ index. “The leading index ⁤continues to suggest that economic activity is likely to decelerate and descend into mild⁤ contraction in the months ahead.”

Jackson Hole

Fed Chair Jerome Powell will‍ deliver a much-anticipated speech at the central bank’s ⁤annual Jackson Hole symposium, ⁢where he is expected to address the current state⁤ of the economy ‍and provide insights into ‌the future course of ​monetary policy.



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