CNBC has some mixed news on the economy this morning, indicating that the American economy has not yet turned a corner. On the plus side, manufacturing rose in June, but slower than it did in May. On the negative side, the services sector — 80% of the American economy — contracted in July rather than expanded as expected:
The U.S. service sector contracted in July at a faster pace than in June, according to a report released Wednesday.
The Institute for Supply Management’s services index fell to 46.4 last month from 47.0 in June, below economists’ median forecast for a rise to 48.0. The dividing line between growth and contraction is 50.
The services sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.
That throws a dash of cold water on the suggestion that the US had turned a corner on economic pain. The Obama administration has been patting itself on the back for rescuing America from a depression, even though no one can detect any impact from the White House/Congressional stimulus package. July represents the start of the third quarter, where the administration had expected to see growth, especially after the -1.0 GDP in Q2. Increasing contraction in the services sector makes that more difficult to achieve and portends lower revenues than expected for the Treasury — which means even higher deficits than predicted.
Even the manufacturing news is a mixed bag. The Commerce Department showed a 1.1% increase in orders in May, slowing down to 0.4% increase in June. That beat analyst expectations, but also indicates that the growth in manufacturing may be petering out at the same time as the service sector contracts. Orders for big-ticket items like cars and appliances fell 2.2% after rising 1.3% in May, which may track with declining consumer confidence after a boost in spring that came with the stimulus package.
All of this hints at a higher unemployment rate, the figures for which will be released by the end of the week. If that number continues to rise, expect consumer confidence to decline and these numbers to get worse. It’s far too early to celebrate the end of the recession.