Key Economic Reports Disappoint This Week

Four important economic reports came out this week, and all four were weaker than expected. On Tuesday, the Conference Board reported that the Consumer Confidence Index unexpectedly fell in May to a reading of 64.9, down from 68.7 in April. Analysts had expected the CCI to rise to 70, so it was quite a surprise when it dropped by the largest monthly amount since last fall.

Making matters worse, this was the third consecutive monthly drop in the Consumer Confidence Index. Even if it had hit 70, it would still be well below 90, which signals a healthy economy.  By comparison, the CCI averaged 88 under President George W. Bush who President Obama continuously blames for everything that is wrong with our economy.

Consumer confidence has a direct correlation with consumer spending, and consumer spending accounts for apprx. 70% of GDP. So the fact that consumer confidence has fallen the last three months in a row suggests that economic growth is likely to remain soft for at least the next several months.

No Confidence

To put the latest Consumer Confidence Index into a better perspective, take a look at the following chart comparing confidence in Ronald Reagan’s first term with that of President Obama.

Remember that Reagan inherited the worst post-war recession on record when he was inaugurated in 1981. Yet consumer confidence soared in his first year in office – people were inspired – not so today under the present “Apologist-In-Chief.” Here is a link to a very good article on the latest decline in the Consumer Confidence Index:

http://news.investors.com/article/612950/201205291845/consumer-confidence-flatlines-under-obama.htm.

[I must warn my Obama supporters that this article from the usually unbiased POLITICO is not flattering to the President, but you probably should read it anyway, considering the source.]

Speaking of GDP, the Commerce Department released its first revision of 1Q GDP yesterday and as expected, that number was revised lower. Back in late April, the government estimated that GDP in the 1Q rose 2.2% (annual rate), down from 3.0% in the 4Q. Yesterday the Commerce Department lowered the estimate to only 1.9%.

While yesterday’s downward revision of 1Q GDP did not come as a huge surprise (the pre-report consensus was for a decline to 2.0%), it nonetheless underscores the fact that our economy is not getting better, but is getting worse this year. More and more analysts are fearing that the economy could actually slip back into recession later this year or next year, especially if the Bush tax cuts expire as I wrote last week.

I should also note one other report that came out yesterday. New applications for state unemployment benefits increased by 383,000 in the week ended May 26 versus a revised 373,000 in the prior week. The report was considerably worse than the pre-report consensus of 365,000. This reminds us once again that jobs are scarce and more people are being laid off.

Finally, there was today’s unemployment report for May. The Labor Department reported that the official unemployment rate for May increased to 8.2% from 8.1% in April. The pre-report expectation was for a decline to 8.0%, so this morning’s report was yet another negative surprise in addition to the other negatives this week noted above.

Non-farm Payrolls

Furthermore, today’s unemployment report revealed that only 69,000 jobs were created in May, the least since May of last year. Not only that, but the Labor Department revised down the number of jobs created in March and April by 49,000.

All in all, it was a very bad week for economic news. The stock markets took it on the chin, not surprisingly due to the combination of weak economic reports and new troubles in Europe. The Dow Jones Industrial Index has plunged from a high above 13,300 on May 1 to below 12,200 (and plunging) today.

In parting, there is no question that things look quite dreary, both on the US economic front and in Europe, most of which is clearly in a recession. Some argue that the US is not far behind. No wonder that stocks are taking a beating. However, this pullback in stocks may well be a buying opportunity, especially for those who have been sitting on the sidelines since 2008.

Have a great weekend everyone!

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