Once Again, the U.S. Consumer Prevents a Double-Dip Recession
While many are concerned about a double-dip recession, economists say the figures tell a different story. Industrial output grew in July at its fastest rate this year according to a Federal Reserve report Tuesday, while retail sales rose by the most in four months. In the week ending August 6, the most volatile week for markets since the financial crisis, jobless benefits dropped to their lowest level since early April. According to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, “There’s nothing here to suggest the economy is slowing, let alone declining.”
Companies like Home Depot (NYSE:HD) and Macy’s (NYSE:M) have been beating analysts’ estimates with their second-quarter earnings reports, and in those reports, “there is no indication that companies are cutting back abruptly in their hiring or spending,” says Neil Dutta, an economist at Bank of America (NYSE:BAC) Merrill Lynch in New York. In fact, production at factories, mines, and utilities climbed 0.9% last month, following an upwardly revised 0.4% increase in June.
Production of automobiles increase 5.2% last month, while manufacturing climbed 0.3% when excluding motor vehicles following a 0.2% gain in the previous month. Business equipment production increased 0.6% in July compared to 0.2% in June., computer and electronic production gained 0.5% after a 0.8% decline in June, and furniture production rose 0.7% in July after a 2.4% decline the previous month. And all that increased production is the result of consumer spending. Retail sales increased 0.5% in July, the most in four months, after climbing 0.3% in June.
Unemployment has been the biggest factor for concern over the economy, with June adding fewer jobs than needed just to keep up with population growth. However, the unemployment rate fell from 9.2% to 9.1% in July, the first decline in four months, as the economy added 117,000 new jobs. Furthermore, last week’s jobless claims figures showed that fewer people filed for unemployment benefits in the week ending August 6 than any other week since April. Jobless claims fell below 400,000, the tipping point that determines whether the job market is contracting or expanding.
Even Japan has been showing improvement, with its economy contracting less than expected in the second quarter, despite the March 11 earthquake and tsunami that crippled industry and resulted in supply disruptions that affected some of the countries largest companies, including Toyota (NYSE:TM) and Honda (NYSE:HMC). The world’s third-largest economy has been rebounding faster than expected, and industrial production has increased for each of the last three months following a huge drop-off in March after the earthquake. Companies plan to boost output this month to make up for lost capacity, and many hope to be to normal production levels as soon as September.
But despite all the economic data showing a steadily improving economy, the negative data seems to be taking over the American consciousness. The housing market still isn’t recovering, growth in both the service sector and the manufacturing sector has slowed, household spending declined for the third straight month in July, and last week a survey of economists showed the likelihood of another recession increased from 15% to 25%. Add to that the volatility of the markets following the S&P downgrade and you have widespread fear strong enough to actually cause that which is feared: another recession.