As Washington begins its slow walk away from a partisan debt-ceiling fight, a trove of recent economic data points to a painfully sluggish economy, and signals that the last-minute nature of the deal allowed for a softening of already-weak confidence in growth.
First, the U.S. Bureau of Economic Analysis released revisions to its past assessments of GDP. Their new figures indicate that the U.S. economy grew by just 1.3% in the second quarter and by a measly 0.4% in the first quarter of this year — a significant downward trend. To make matters worse, the report estimated that the recession of 2007-09 was much deeper than previously projected, with the economy having shrunk 3.5% (as opposed to 2.6%) in 2009 alone.
The manufacturing data released today were no reason for celebration either. The Institute for Supply Management (ISM) July index took the wind out of the sales of an early morning Wall Street rally, investors having rejoiced at the prospect of a deal in Washington to avert U.S. default. From the report:
ISM’s New Orders Index registered 49.2 percent in July, which is a decrease of 2.4 percentage points when compared to the 51.6 percent reported in June. This is the first month of contraction in the New Orders Index since June of 2009, when it registered 48.9 percent. A New Orders Index above 52.1 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
ISM’s Employment Index registered 53.5 percent in July, which is 6.4 percentage points lower than the 59.9 percent reported in June. While this month represents the 22nd consecutive month of growth in manufacturing employment, the July reading is also the lowest reading since December 2009, when the index registered 53.2 percent. An Employment Index above 50.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Compounding the slow growth and the lackluster manufacturing numbers is lingering uncertainty about the United States’ credit rating. Today’s market downturn was fueled in part by a flight from dollar holdings to so-called safe-haven currencies like the Swiss franc. In fact, the U.S. dollar reached record lows compared to the franc on Monday, and there’s no indication the deal on a future “Super Congress” to tackle runaway spending and a massively flawed tax system will affect market perceptions of U.S. solvency.