Three Economic Reports, Three More Reasons To Worry

A trio of economic reports released this morning bring fresh clues about the outlook for the macro trend, but all three offer only more reason to wonder if the economy can maintain positive momentum in the months ahead.

Let’s start with the S&P Case-Shiller home price index. There was no great surprise here in learning that prices are still falling. The 10-city index dropped 0.1% for March and the 20-city index was down by 0.2%. More discouraging is the fact that the trend remains deeply negative. As the chart below shows, the brief bounce has long since faded and prices continue to slump on a year-over-year basis.

“The rebound in prices seen in 2009 and 2010 was largely due to the first-time home buyers tax credit,” says David Blitzer, chairman of the Index Committee at S&P Indices, in a press release that accompanied the update. “Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession. Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains.”
The news isn’t any better in the Conference Board’s consumer confidence index for May. A sharp drop in the index suggests that consumers have turned gloomy once more. “Consumers are considerably more apprehensive about future business and labor market conditions as well as their income prospects,” says Lynn Franco, director of The Conference Board Consumer Research Center, in a prepared statement. “Inflation concerns, which had eased last month, have picked up once again. On the other hand, consumers’ assessment of current conditions declined only modestly, suggesting no significant pickup or deterioration in the pace of growth.”
Meanwhile, a big drop in a measure of business conditions for the Chicago region adds to the anxiety. A hefty drop in the monthly pace of growth for new orders was the culprit. Although the Chicago Purchasing Managers Index is still at levels associated with expansion, the fact that new orders—a leading indicator—slowed the most in several years isn’t encouraging.
The good news is that the risk of a new recession is still quite low, based on a broad reading of the economic profile. The bigger threat is that the expansion slows by more than a little. What could tip that outlook into something darker? We may find out later this week as the next round of numbers hits the street. First up is tomorrow’s update on the ISM Manufacturing Index, followed by jobless claims on Thursday, and the May nonfarm payrolls update on Friday.
The jobs report in particular is critical, now more than ever. The consensus forecast anticipates a modestly lower pace of growth for private nonfarm payrolls for May vs. April, but nothing that suggests a new recession is near. But all bets are off if there’s a big disappointment.
“This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again,” says Angel Gurria, secretary general of the Paris-based Organisation for Economic Cooperation and Development (OECD).