Muddled messages on the US economy
New Fed Chair Janet Yellen is barely a
week into her term. But if the past week's economic data releases are
any indication, she certainly has her work cut out for her. For at the
moment, the economic figures are painting - at best - mixed messages on
the state of the US economy.
First, we had the ISM Manufacturing index on Monday. Think of this as a barometer of US manufacturer confidence. Long story short: after several months' worth of strong readings, the index plunged from 56.5 to 51.3 in December,
suggesting that a pullback in manufacturing activity is in store.
As all of you on the East Coast can attest to, a good part of the drop
can be attributed to the horrendous weather conditions we've seen
lately. That being said, weather is unlikely the only culprit. As the Wall Street Journal* noted, the
recent breakneck buildup in inventories - which was also a strong
contributor to the US economy's 3.2% growth rate in the 4th quarter -
may be taking its toll. Indeed, when you have a glut of stockpiled goods, at some point orders will slow.
Second, Friday saw the release of the second downbeat employment report in a row. The
headline job creation number (+113K jobs created in January) was not
much consolation for the even more dismal +75K number in December.
With employers churning out jobs at a 200K+ clip just three months ago,
the slowdown is truly astonishing. Again, weather quickly comes to mind.
But with certain weather-sensitive sectors - especially construction
(+48K jobs) - creating jobs at an admirable rate - some underlying
weakness is likely at play. Adding to the confusion, a separate
household-based survey showed that Americans were reentering the
workforce and finding jobs, pushing the unemployment rate to a five-year
low of 6.6%. So all in all, a very mixed report that's gotten economists scratching their heads.
All we can do at this point is wish Chairman Yellen
good luck in deciphering these enigmatic signals from the economy. While
it's unlikely to force the Fed into a U-turn from continuing its
stimulus reductions, it'll certainly have some FOMC members thinking
harder about the true state of the recovery.
*Here's the link to the WSJ article: http://blogs.wsj.com/
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