The Monday Economic Report

November 23, 2009-- Dave Huether, Chief Economist, National Association of Manufacturers

Economic news last week was a grab bag of both good and bad. Of last week's 10 indicators, only four expanded (two measures of inflation, retail sales and a regional report on manufacturing activity). These upturns were countered by decreases in another regional manufacturing report, an overall decline in manufacturing production in October (see chart above) and a decline in residential construction.

At the same time, new claims for unemployment insurance held steady for the week ending November 14 and continued to stubbornly remain above 500,000, while the housing market seems to have flattened out after improving earlier in the year.

Taken together, the reports last week are constant with the expectation that while the recession may be over, acceleration in economic growth from the 3.5 percent increase in the third quarter is unlikely.

The key for self-sustaining expansion to take hold is for businesses to be confident enough to expand operations and hire workers. Without this element, a healthy recovery simply will not take hold. Unfortunately, there is little sign that this is currently taking place. The current employment situation is far worse compared to the same period during the prior four business cycles; wage growth is anemic; and consumer confidence remains very low. These factors will likely constrain consumer spending as well as business investment for the next few quarters.
And while export growth has turned positive in recent months, exports are just 13 percent of the economy and cannot lead a strong recovery alone.

This week, a number of indicators will further show how the fourth quarter is shaping up, including home sales (October), consumer confidence (November) and several reports of manufacturing activity for October and November.