New data confirm what most Americans already knew – that the economic recovery is losing steam. The manufacturing sector expansion is slowing, demand for mortgage loans is down, and the pace of economic activity rose modestly or just held steady around the country. Three separate reports paint a gloomy picture of the economy’s bumpy recovery from recession.
The Federal Reserve’s latest “Beige Book ” report, a carefully watched regional summary of current economic conditions because it can provide hints about future monetary policy, indicated that the pace of economic activity is slowing. The news sent stocks down after four days of gains, with the Standard & Poor’s 500-stock average slipping 0.7 percent.
The report confirmed recent comments from Fed Chairman Ben Bernanke about the uncertainty surrounding the economic outlook. He said the Fed is “prepared to take further policy actions” if the recovery begins to stall.
While economic conditions continued to improve in most of the country in June and early July, the report said, the advances were modest. Manufacturing activity increased since the previous report at the beginning of June, but the pace “slowed” or “leveled off” in New York, Cleveland, Kansas City, Chicago, Atlanta and Richmond.
Retail sales had just a “modest” increase in the beginning of the summer. Nearly all 12 Federal Reserve districts reported sluggish housing markets, primarily because of the expiration of the homebuyer tax credit, which gave first-time home buyers an $8,000 credit toward a new home purchase.
In a separate report, the Labor Department said the unemployment rate in three-quarters of the nation's largest metropolitan areas rose in June. Among cities with more than a million residents, Las Vegas reported the highest jobless rate, 14.5 percent. Earlier this month, the government reported that the nation’s unemployment rate fell to a seasonally adjusted 9.5 percent from 9.7 percent in May.
“Most data related to consumers, particularly the job markets report, have been weaker than anticipated,” said Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association. “The most likely scenario is that the economy is going to keep growing but at this really fairly anemic pace.”
Mortgage Applications Down
In its latest weekly survey, the Mortgage Bankers Association said loan applications dipped 4.4 percent, suggesting demand for borrowing remains weak. Although applications for home purchases rose slightly, they remained close to a 14-year low. “We really see no evidence of strong job growth yet and that’s what we are waiting for,” Fratantoni said.
Applications for refinancing dropped 5.9 percent, after recent gains largely due to a decline in mortgage rates. Fratantoni said many homeowners don’t have enough equity to qualify because of the decline in home prices and continuing high unemployment. He noted that many have refinanced once in the past 18 months so it may not be worthwhile to refinance again.
The average rate for 30-year fixed rate mortgages, considered the most popular among consumers, rose to 4.69 percent from 4.59 percent, according to the MBA survey.
Wednesday’s data come a day after the Conference Board reported that its Consumer Confidence Index dropped for the second straight month after three months of increases.
Durable Goods
A report from the Census Bureau Wednesday said new orders for durable goods in June fell 1 percent, or $2.0 billion, to a seasonally adjusted $190.5 million, the second consecutive monthly decline. Economists had expected a 1 percent gain. Durable goods data are seen as significant guides to overall investment spending by companies. They are manufactured products intended to last for at least three years, and are considered a guide to spending by companies. The decline was led by a nearly 26 percent drop in orders for commercial aircraft.
Transportation equipment overall had the largest decrease, of 2.4 percent to $45.9 billion, down four of the last five months. However, shipments of core capital goods orders increased by 0.2 percent.
Some said the report might not be entirely bad news. “The bottom line is that the data show business investment had a very strong second quarter and, although the recovery in manufacturing may be losing a little momentum, it is hardly collapsing,” said Paul Dales, an economist following the U.S. economy for Capital Economics, a research firm in London. He said business investment is likely to remain strong in the third quarter.
The Associated Press contributed to this report.