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Reports continue to suggest tepid, but still growing economy

By Sonja Ryst
Encouraging data Wednesday on service industries and private-sector employment are providing more evidence that while the economy is still sluggish, it's also still growing.

The positive news, which pushed stocks up Wednesday, comes as analysts have been scratching their heads over recent contradictory reports on several economic indicators.

The Institute for Supply Management said that its index of non-manufacturing businesses -- which measures service sector activity -- registered 54.3 percent in July, up 0.5 percent from the previous month. The pace of growth improved compared with June, when the index had dropped 1.6 percent from the previous month to 53.8.

Any reading above 50 suggests growth, and July is the seventh consecutive month that the service sector has seen improvement. Survey respondents showed optimism and caution. Comments ranged from "Consumer attitude has improved" to "The instability in markets is continuing our focus on cautiousness."

The report follows news Monday that the ISM's index of manufacturing industries amounted to 55.5 last month, growing at a 0.7 percent lower rate than in June, yet expanding in July for the 12th consecutive month.

Economists have been puzzled by the mixed messages from economic indicators in the last few months.

"The glass has gone from being mostly full to half full, and the good news is that it's still half full," said Kevin Caron, market strategist for Stifel, Nicolaus. "But the bad news is that it was mostly full a few months ago."

"I've never seen an environment where you've had such little uniformity of opinion about the direction of the economy," Caron said.

Also Wednesday, the ADP National Employment Report showed that private-sector employment increased by 42,000 from June to July on a seasonally adjusted basis. On the one hand, it was the sixth consecutive monthly gain in private employment; on the other hand, those six increases averaged only 37,000 and showed no evidence of acceleration.

Gary Butler, ADP's chief executive, said in a news release that continued weakness in the jobs market has been caused in part by uncertainty in the economy and the general business climate. "American businesses are on the cusp of recovery, but more effective incentives are needed to encourage business investment resulting in the creation of more jobs," Butler said.

That might explain some of the downers that have been in the news this week. On Tuesday, several indicators cast a gloomy outlook: The Commerce Department announced that personal spending remained flat in June and that orders for manufactured goods unexpectedly fell 1.2 percent to $406.4 billion. Also, the National Association of Realtors reported that its index of pending home sales fell to the lowest level since 2001 when it began keeping records.

"It's not clear that we're out of the woods," said Michael Holland, chairman of the New York investment firm Holland & Co. in New York. "It's just the opposite, if anything."

Analysts and economists seem to be following the same formula when discussing the future of the U.S. economy: Comment on the bleakness of the recent data while also hedging yourself by noting that the country is still in recovery.

News outlets hung on the words of former Federal Reserve chairman Alan Greenspan during an interview Sunday on NBC's "Meet The Press": "We're in a pause in a recovery, a modest recovery but a pause in the modest recovery feels like a quasi-recession."

Quasi-read into that one as you like.

By Sonja Ryst  |  August 4, 2010; 4:41 PM ET
Categories:  U.S. Economy  
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Next: Economic agenda: Thursday, Aug. 5, 2010

Comments

Recovery is an individual choice, not a national one, and is based on finding opportunities with a silver lining among the dark clouds. It is not dependent upon government statistics.

Posted by: carey_glasshalffull | August 4, 2010 7:47 PM | Report abuse

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