The U.S. economy enters the New Year with momentum of a recession getting deeper not shallower. Most economic indicators reflect an economy contracting at an accelerating pace. Certainly, the recession has pushed down home sales and home prices at faster rates than otherwise would have occurred if the economy had been expanding. Historically low mortgage rates and relatively low home prices combined with an excess of foreclosed properties for sale at discount prices have not been enough to bring potential buyers into the market. That has forced home prices down more. Both consumers and businesses enter the New Year nervous and with deteriorating confidence. Consumer spending is very weak and businesses have markedly cut their investment in plant, equipment and inventories. The labor market continues to deteriorate, shedding over 500,000 jobs in just November alone.
Record Low in Consumer Confidence
The Conference Board’s consumer confidence index fell to a record low 38 in December from 44.7 in November. This was disappointing news and suggests a negative outlook for future consumer spending. This does not bode well for first quarter GDP growth. Jobless claims were down sharply to 492,000 for the week ending December 27 from a 26-year high of 586,000 claims a week earlier. Although the decline was welcome news for the labor markets, we note that the claims data has been extremely volatile during holiday weeks. We will reserve judgment until the second week in January when the holiday effect has passed.
Durable goods orders fell 1 percent in November, while shipments fell by 2.6 percent. The numbers continue to reflect a contracting manufacturing sector. Finally, the Institute for Supply Management (ISM) purchasing managers’ index fell to 32.4 in December from 36.2 in November. Over the past six months, this index has fallen almost 18 points to 32.4 in December from 50.2 in June. The manufacturing sector is clearly contracting sharply, contributing to a more prolonged recession.