As Q2 ends, more evidence the economic is sliding downward

As the one-time bump from the Trump tax cuts wears off of the country's economic growth, we see more evidence that there is little strength below it to keep things going.

For example, in one report from the US Census Bureau, we have 3 bad signs from May.

May 2019 change vs April 2019
Trade deficit for goods UP $2.6 billion to $74.5 billion
Wholesale inventories UP 0.4%
Retail inventories UP 0.5%
Motor vehicle and parts inventories UP 0.8%

And those wholesale inventories are up 7.8% from May 2018, with retail inventories up 4.8%, and auto inventories up 7.9% in the same 12 months. No need to be making more products when you’re not selling the ones you already have.

But hey, at least all of those extra cars on the lot helped me replace my 12-year old Corolla (bought right before the last recession began, in summer 2007). If yesterday was any indication, there are a lot of end-of-the-model-year specials to grab, with lots of dealerships trying to clear inventory at the end of Q2,

The reality of a lack of need leading to lower business demand for bears itself out in another report from last week, which showed manufacturers have had less business in the last 2 months.

New Orders
New orders for manufactured durable goods in May decreased $3.3 billion or 1.3 percent to $243.4 billion, the U.S. Census Bureau announced today.

This decrease, down three of the last four months, followed a 2.8 percent April decrease. Excluding transportation, new orders increased 0.3 percent. Excluding defense, new orders decreased 0.6 percent. Transportation equipment, also down three of the last four months, drove the decrease, $3.9 billion or 4.6 percent to $80.0 billion….

Unfilled Orders Unfilled orders for manufactured durable goods in May, down three of the last four months, decreased $6.4 billion or 0.5 percent to $1,171.2 billion. This followed a 0.2 percent April decrease. Transportation led the decrease, $5.8 billion or 0.7 percent to $803.6 billion.

And sales of new homes also had a significant slowdown in May.

New Home Sales Sales of new single-family houses in May 2019 were at a seasonally adjusted annual rate of 626,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.8 percent (±14.7 percent)* below the revised April rate of 679,000 and is 3.7 percent (±15.0 percent)* below the May 2018 estimate of 650,000.

That drop more than wipes out the gains of the last 2 months in new home sales. It could reflect the fact that the reality that consumers are starting to recognize the economy’s stalling out, as the impact of news of trade wars and other issues seeped into consciousness last month.

The numbers: Consumers confidence fell in June to the lowest level in almost two years as Americans grew more worried about trade tensions with China and said it was harder to find a job.

The consumer confidence index slipped to 121.5 from a revised 131.1 in May, the privately run Conference Board said Tuesday. It was the weakest result since September 2017….

Another gauge of consumers that looks out toward the next six months declined to a five-month low of 94.1 from 105.

Given that retail sales were actually strong in May, it makes you wonder how long that can hold up. A cutback by the consumer likely means recession will follow fast, as there is little else keeping the economy growing at this point.

And maybe it was very shaky to begin with, as the former Chair of President Obama's board of economic advisors noted on Thursday, when Q1 GDP had its last revision.

Revised GDP for Q! unchanged at 3.1%, with weaker C than originally estimated and stronger I.

The (slightly) bigger story is that GDI for Q1 was revised down from 1.4% to 1.0% deepening the disconnect I tweeted about last month.

Thread below now applies a bit more forcefully. https://t.co/QFD8wyQnRA

— Jason Furman (@jasonfurman) June 27, 2019

In some rare decent economic news, Friday’s personal income and spending report reiterated that consumers hadn’t yet hit the breaking point.

Personal income increased $88.6 billion (0.5 percent) in May according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased$72.6 billion (0.5 percent) and personal consumption expenditures(PCE) increased $59.7 billion (0.4 percent).

Real DPI increased 0.3 percent in May, and real PCE increased 0.2 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.2 percent.

That’s solid growth, although it’s also not indicative of any kind of boom. And what’s buried inside the report is that the income growth isn’t reaching the typical American as much as the decent topline numbers would make it seem.

Income growth, May 2019
Compensation for workers – up $18.5 billion (+0.17%)
Income for owners of businesses – up $12.8 billion (+0.8%)
Income from interest and dividends – up $43.8 billion (+1.6%)
Net Income from pensions, health care, other transfers – up $11.9 billion (+0.4%)
Rental Income – up $1.8 billion (+0.2%)

Along with that tepid 0.17% growth for workers, they only got 0.26% more in April, which are the two slowest months in 2019 so far. Not panic time, but definitely seems to be softening, especially for everyday Americans over the richer ones who benefit from asset growth. The 0.4% consumer spending increase is also the lowest in 3 months, and we'll see if the drooping consumer confidence translate into fewer sales in the near future.

This week’s reports are why the Atlanta Fed just brought their GDP projections for Q2 2019 back down to 1.5%, after those projections had risen in the prior two weeks.

As has been the case in most of 2019, there’s a lot of cross-currents for both interest rates and the overall economy, and just when you think there’s a definitive direction, a couple of reports like Friday’s takes you the other way.