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Key Economic Indicators Fail to Meet Expectations

A series of economic data released today has pretty bad news for those hoping for a sustained recovery that will increase job and GDP growth.

First of all, personal income nearly flatlined, rising just 0.1% in August, a number that, if annualized, would be below inflation. So real income is decreasing. Personal income came in with virtually the same number in July. This represents a slowdown from the second quarter, when income rose at a faster rate. And all the numbers on salaries and wages were down in August relative to July. So the recent trend is near-flat wage growth, which we’ve seen for some time.

Personal consumption expenditures did rise by a healthy 0.5% in August, but that’s fairly flat in real terms. But you wonder how long that can continue in the midst of a wage slowdown, without building another credit bubble. And even with that rise, personal consumption increases in the third quarter are consistent with a 1.3% rise in GDP, the same as the weak second quarter.

Then, the Institute for Supply Management Chicago’s survey of business showed their business barometer at 49.7, the lowest level in three years. These numbers are very distressing:

EMPLOYMENT: 2 1/2 year low; NEW ORDERS, ORDER BACKLOGS, and SUPPLIER DELIVERIES: 3 month moving averages lowest since mid 2009; PRICES PAID: third consecutive monthly gain; BUYING POLICY: CAPITAL EQUIPMENT: 17 month low.

So I see prices going up with business activity going sharply down. The trend is all down from the spring, which wasn’t exactly a boom time in its own right.

Finally, the University of Michigan’s consumer sentiment index rose to a four-month high, but at a rate below expectations. The Conference Board’s consumer confidence survey had a similar rise in September, and I do think this can be explained by Democratic confidence as a residual effect from the Presidential election, as opposed to some real economic activity.

Stocks are generally down after this series of reports. So far, the expectations from a new round of quantitative easing have failed to really boost the economy, though most of these figures come from before the announcement, so we shouldn’t write that off totally. The larger point is that this isn’t a fully healthy economy, and certainly not one that could withstand a major drawing back of fiscal supports, as Congress contemplates in their next round of negotiations on the sequester and tax rates.

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David Dayen

David Dayen