Slowing Economy Confirmed

By:  Bob Adelmann
Slowing Economy Confirmed

There are always unintended consequences when using Keynesian economic theories to try to jumpstart an economy. One of them is the freezing of credit markets because of the Fed's manipulations.

A report on the U.S. job market from Automatic Data Processing (ADP) on Wednesday morning surprised economists once again by coming in substantially below their expectations. The 135,000 new private-sector jobs created in May were way below the 170,000 estimated by economists polled by Dow Jones Newswires. Mark Zandi, chief economist for Moody’s Analytics, which produces the report for ADP, tried to put a positive spin on the disappointment:

The job market continues to expand but growth has slowed since the first of the year.

The softer job market this spring is largely due to significant fiscal drag from [January’s payroll and income] tax increases and [from] government spending cuts.

A closer look behind the headlines reveals that all of the new jobs were in the service sector while manufacturing actually declined. And only four out of 10 of those jobs came from small businesses with fewer than 50 employees. Medium and large employers made up the rest.

On Monday the Institute for Supply Management (ISM) noted that economic activity in the manufacturing sector contracted for the first time since last November, with key elements of its various internal indexes declining significantly. Its primary indicator, the PMI, dropped by nearly two points, to 49 (50 is neutral), while new orders fell even further, from 52.3 to 48.8. Its production index lost even more ground from April, dropping to 48.6 from 53.5. Its backlog of orders index slowed by five points, contracting from 53 to 48, indicating further slowing in the manufacturing sector in the months to come. ISM quoted typical comments from its customers, including this from a maker of fabricated metal products, “General economy seems sluggish and pensive,” while a supplier of heavy machinery said the “downturn in European and Chinese markets is having a negative effect on our business.”

The Baltic Dry Index provides of measure of shipping activity worldwide by comparing demand for cargo ships with the available supply and is considered to be a leading economic indicator because it predicts future economic activity. From a high of 940 in mid-March, the BDI has declined sharply since then to just over 800.

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