These five economic indicators tell me the U.S. economy is getting weaker, not stronger…
Economic Indicator #1: U.S. Housing Market in Trouble?
The housing market is soft. Pending home sales figures (this is the number of homes that have been purchased under contract, but where the sale hasn’t gone through yet), have declined about five percent over the past six months. The National Association of Realtors’ Pending Home Sales Index has declined 4.8% between July and December. (Source: National Association of Realtors web site, last accessed February 9, 2015.) In other words, home sales are declining.
Economic Indicator #2: Buyers for Big-Ticket Items on the Decline
Orders for big-ticket items are falling. Between July and December of 2014, orders for durable goods at U.S. manufacturers (these are goods that are expected to last for a long period of time, like major appliances) declined more than 23%. In July, new orders for durable goods at U.S. manufacturers amounted to $299.86 billion. In December, this amount was just $230.61 billion. (Source: Federal Reserve Bank of St. Louis web site, last accessed February 9, 2015.)
Economic Indicator #3: Inventories Rise at U.S. Businesses in 20 of the Last 21 Months
Inventory levels at U.S. businesses are rising. While orders for durable goods are falling, inventories continue to increase at U.S. manufacturers. In December of 2014, inventories of durable goods at U.S. manufacturers increased by $2.0 billion. They have been increasing for 20 of the last 21 months and stand at their highest level since 1992. (Source: U.S. Census Bureau, January 27, 2015.)
Economic Indicator #4: Capital Spending for American Businesses on the Decline
Businesses are not investing in their own businesses. In December, new orders for capital goods by durable goods manufacturers (excluding defense) amounted to $73.64 billion, a decline of 45% from the $136 billion these companies spent in July of 2014. (Source: Federal Reserve Bank of St. Louis web site, last accessed February 9, 2015.) Lack of capital spending is negative for job creation and shows how pessimistic corporate America really is.
Economic Indicator #5: U.S. Manufacturing Close to Contraction Again
Manufacturing activity is on the decline. The Institute of Supply Management Purchasing Managers’ Index (PMI) fell to 53.5 this past January, down from 58.1 in August of 2014. (Source: Federal Reserve Bank of St. Louis web site, last accessed February 9, 2015.) A PMI reading below 50 indicates contraction in the U.S. manufacturing sector.
What’s Really Ahead for the Stock Market?
As I have been writing for months, the U.S. economy is getting weaker, not stronger. The stock market isn’t painting the real picture of what is going on in the economy and with American business.
Artificially low interest rates have pushed more and more investors into stocks as other investment vehicles are paying less (as of this writing, the U.S. 10-year Treasury was yielding only 1.97%, while the Dow Jones Industrial Average had a dividend yield of 2.20%).
With 75% of the S&P 500 companies propping up their per-share earnings with stock buyback programs, investors feel comfortable again about stocks.
Who cares if the slowing global economy will result in the S&P 500 companies posting revenue growth of only 1.4% this year? Who cares if close to one million American jobs could be affected by the collapse in oil prices? Who cares if the strong U.S. dollar is putting pressure on the almost 50% of S&P 500 companies that get sales from outside the U.S.?
At this point, the stock market has become nothing more than a sucker’s rally that only cares about luring more investors into stocks and nothing more.