May 01, 2015

U.S. Economy: Disappointing?

Recently, the Bloomberg Economic Surprise Index ranked the U.S. economy as the most disapointing major economy in the world. The index which measures incoming economic data against economic expectations says that U.S. economic data has consistently been falling short of expert’s predictions in the last six years.

Corroborating this statement is Citigroup’s U.S. Economic Surprise Index, whose scoreboard shows that the U.S. is the most disappointing relative to consensus forecasts. The Citigroup U.S. Economic Surprise Index gauges how U.S. economic data performs relative to expectations on a rolling three-month basis. While American policymakers frequently talk about weakness in the European and Chinese economies, both are exceeding expectations.

Most Disappointing Countries

Most Disappointing Countries

Source: Citigroup

While the media often focuses on the positive – the 1.3 million jobs added over the past 4 months and the low unemployment rate – other measures fall short of expectations. This month alone, personal income and spending, manufacturing, automobile sales, factory orders, and retail sales are all weak.

First-Quarter Growth Forecasts:  First-quarter U.S. growth forecasts continue to be cut by leading banks. Michael Feroli of JPMorgan Chase cut his forecast to 2.0 percent from 2.5 percent, while Barclay Capital reduced its estimate to 1.5 percent.

Wage Growth: While monthly job gains continue to gain consumer confidence, wage growth has not seen an improvement.

Job Creation: Economists say that despite job creation, the biggest disappointment has been the types of jobs being created and the overall strength of the labor market.

“Are we creating enough jobs that people with a range of skills can possibly take on? Do we have the right skills? Are we creating jobs that fit the skills we can create?” ~Jerry Webman, Chief Economist at Oppenheimer Funds

The U.S. Dollar: According to some economists, in the past six months, the dollar has increased by a near-record amount making U.S. goods about 25 percent more expensive on global markets.

Manufacturing Output:  According to Federal Reserve data, in March 2015, manufacturing output had a 0.1 percent gain, its first advance in four months.

“The dollar is a wet blanket on manufacturing. If the dollar remains this strong, we’re going to have headwinds in manufacturing for a while.” ~Guy Berger, U.S. Economist at RBS Securities, Inc.

Industrial Output: In March 2015, U.S. industrial production fell sharply by 0.6 percent. A year ago, industrial output was up 2 percent.

Utilities Output: Utilities output fell 5.9 percent in March 2015, the biggest decrease since January 2006.

U.S Firm Borrowing: U.S. corporations have been borrowing large amounts to buy back stocks, increasing their leverage without building new production capacity.

Housing: The Commerce Department recently released a report showing a smaller than expected rebound in housing starts. Economists were expecting housing starts to jump to a rate of 1.05 million in March 2015, but they actually only rose 2 percent to 926,000. Also, building permits, an indicator of future housing demand, fell 5.7 percent to an annual rate of 1.039 million.

Jobless Claims: A report from the Labor Department showed an increase in initial jobless claims in the week ending April 11th, 2015. Initial jobless claims climbed to 294,000, an increase of 12,000 from the previous week. Economists had expected jobless claims to edge down to 280,000.

March’s Job Report: The U.S. economy added 126,000 jobs in March 2015, the lowest monthly job gains since December 2013. Economists were expecting 245,00 new jobs.

“[The latest figures add] to a growing list of dissapointing U.S. economic indicators, suggesting that the economy ended the quarter on a very weak footing. Moreover, there is little indication of an impending rebound.” ~Millan Mulraine, Analyst at TD Securities