Thursday, February 11, 2016

D.C. policies brake economic growth

Economics in a nutshell: Washington may not be able to stop the economic train in its track but it appears to be doing a good job slowing it down.

D.C. policies brake economic growth

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FILE - In this Wednesday, April 17, 2013, file photo Ford´s Flat Rock Assembly Plant employees cheer as the millionth Ford Mustang is driven off the assembly line in Flat Rock, Mich. The Institute for Supply Management issues its U.S. manufacturing index for April on Wednesday, May 1, 2013. (AP Photo/Carlos Osorio)
FILE - In this Wednesday, April 17, 2013, file photo Ford's Flat Rock Assembly Plant employees cheer as the millionth Ford Mustang is driven off the assembly line in Flat Rock, Mich. The Institute for Supply Management issues its U.S. manufacturing index for April on Wednesday, May 1, 2013. (AP Photo/Carlos Osorio)

INDICATOR: April Supply Managers' Manufacturing Survey/April ADP Job Estimates

KEY DATA: ISM (Manufacturing): down 0.6 point; Orders: up 1.9 points; Employment: down 4 points/ADP: up 119,000

IN A NUTSHELL: "Washington may not be able to stop the economic train in its track but it appears to be doing a good job slowing it down."

WHAT IT MEANS: Today was a big one for data as a ton of numbers were released. Two critical ones, a reading on manufacturing activity and an estimate of private sector job gains came in at disappointing levels. Let's start with manufacturing, which continues to grow but at a modest pace. The Institute for Supply Management's index eased in April to a level that is not much above the break-even point. In other words, the sector is expanding but hardly at the pace we saw earlier this year. The details were a bit confounding. On the positive side, new orders rose more strongly, production accelerated and order books filled more rapidly. Those point to stronger activity ahead. On the other hand, the employment measure fell sharply, raising some questions about Friday's payroll numbers.

Speaking of jobs, the ADP estimate of job gains coming out of the private sector was less than expected. The report echoed the ISM survey in that it indicated that manufacturing payrolls could shrink. To me, the real disappointing news is in the modest rise in middle-sized company hiring. These may be the firms that are most uncertain about future growth and government regulations. On the other hand, big business is back in the hiring business big time. However, I would not panic just yet. The Conference Board's Online Help Wanted measure jumped in April so maybe Friday's report will be decent. Just don't expect it to be strong.

MARKETS AND FED POLICY IMPLICATIONS: The Federal Reserve will be issuing its statement today and the meeting is wrapping up looking at economic data that are not particularly great. The manufacturing sector is slowing, job gains may not be particularly strong, and as was seen in another report, construction spending was weak. A huge cut back in government activity was the problem there. Anyone who thought the FOMC might signal a slowing in its purchases of securities will probably be disappointed. The economy has yet to reach escape velocity and there is very little reason to think that Washington will stop putting up roadblocks to growth. The Fed is not likely to change direction until the members are confident the economic rocket can reach orbit. Investors are likely to be worried about today's data and cautious about what the Fed might say.

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About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel L. at joel@naroffeconomics.com .

Joel L. Naroff
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