While the Obama administration is out touting that unemployment grew at a slower rate, i.e. the number of new applications for unemployment benefits were less than anticipated, a much gloomier set of economic figures came out that signals the U.S. economy is anything but healthy.
Revised Gross Domestic Product (GDP) numbers for the second quarter show the economy grew at an anemic 1.3 percent, well below the original 1.7 percent assessment. Worse yet, the number was far below the projected revision of the GDP to 1.6 percent, shocking many economists to reconsider whether the U.S. economy might slide back into recession.
Consumers are always the best measure of the health of the economy and the second quarter saw dramatic declines in consumer spending and business investment. Reductions in consumer demand are generally followed by a loss in jobs portending a future rise in the unemployment rate.
These signals of a slowing economy foretell a third quarter that could be the worst in more than three years. Today’s data sends “a notable red flag for U.S. growth,” says Action Economics Michael Englund.
Politics appears to also be effecting U.S. economic growth as the economy has continued to slow in an apparent “wait and see” attitude in consumer and business markets. The year started with a first quarter GDP of two percent, but growth in the economy has slowed dramatically as the year progressed. One key driver of the economy, manufacturing, has stalled due to an uncertain U.S. political outlook and the rising cost of doing business, primarily because of rising energy and regulatory expenses.
One menacing statistic that has many economists shaking their heads is that durable goods orders plunged last month in the largest drop in more than three years. Data released by the Commerce Department this morning shows that orders fell 13.9 percent last month; the lowest factory demand since Obama took office; economists had predicted a drop of five percent and the nearly tripled decline is startlingly bad news.
Transportation equipment spending hit the economy hard with the biggest decline, nearly a 35 percent drop last month, year-over-year; suggesting “restrained investment spending beyond just a short lull,” according to Citibank’s Steven Wieting.
The U.S.’s largest aircraft manufacturer Boeing received only a single order in August, down from 260 a month earlier.
“Putting aircraft aside, though, we see a clear downward trend continuing in business capital demand,” says IHS economist Jim Dorsey. “Businesses have become more pessimistic as we approach the fiscal cliff with no resolution in sight. But even if we avoid it, there is still China and Europe weighing on our export markets.”
Shipping firms such as UPS and FedEx have their pulse on the economy due to the nature of their businesses. FedEx has recently warned that its profits would be less than expected.
Anxiety about the prospect of government spending was also reflected in the durable goods data. Orders in the defense industry fell nearly 30 percent.
If something doesn’t happen soon to change the trajectory of the U.S. economy a second recession becomes likely. U.S. demand drives nearly every other economy across the globe and should the U.S. sink back into recession it will ignite a worldwide economic crisis that could make the European crisis seem like a minor blip on the screen.
If Mr. Romney’s advisers are doing their jobs Mitt will be blasting out these miserable economic numbers day in and day out for the next six weeks. Mitt has repeatedly fallen into the trap of talking about everything but the horrible economy and that’s precisely what the president wants.
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