Economists Double Down on a Double Dip Recession
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Economists Double Down on a Double Dip Recession

iStockphoto/The Fiscal Times

A new series of economic reports out today confirm U.S. economists’ fear that the early signs of a second recession are taking hold. 

Weekly jobless claims hit a 2-month high indicating employers are pulling back in an already weak labor market.  Labor Department figures show jobless benefits applications rose 11,000 to 428,000 last week, pushing the average up for the fourth straight week to 419,500. Economists agree that applications need to dip below 375,000 to signal hiring is picking up enough to cut the nation’s 9.1 percent unemployment rate.  “The trend in jobless claims is an important input into our recession probability model, and if this trend were to continue for a number of weeks it would raise a warning flag on the state of the economy,” said John Ryding, chief economist at RDQ Economics.

Americans purchasing power dropped as consumer prices rose 0.4 percent in August, according to a separate Labor Department report.  Consumers paid 1.2 percent more for gas, 1.1 percent more for clothes, and 0.5 percent more for food.  Rental costs for housing rose 0.4 percent, the most in almost 3 years, , a reflection of poor home sales.

However, in a rare bright spot for the beleaguered manufacturing sector, overall industrial production at mines, factories, and utility companies rose 0.2 percent in August, according to the Federal Reserve—a weaker showing compared to July’s 0.9 percent rise but an unexpected surprise for economists who had forecast no change at all.   Manufacturing output climbed 0.5 percent, compared to 0.6 percent in July. 

Strength in automobile and electronics manufacturing drove those averages up in a sign that two supply chains slammed by the Japanese tsunami are repairing themselves. But economists worry that any signs of life in manufacturing, particularly with autos, are just a blip on the radar that will not result in new jobs. “The 0.2 percent increase in US industrial production in August was actually quite encouraging…but we do anticipate a renewed slowdown in manufacturing growth over the next few months,” said Paul Ashworth, U.S. Chief Economist at Capital Economics.

Manufacturing activity in the Northeast contracted so far this month, according to surveys out today from the Philadelphia and New York Federal Reserve banks.  This follows a Philadelphia Fed report out last month that showed that the business activity index in Pennsylvania, Delaware, and parts of New Jersey fell to minus 30.7 from positive 3.2 a month earlier.  

According to manufacturing industry insiders, the new figures are not encouraging.  The auto surge drove up the manufacturing average, covering up widespread slackening in the rest of the sector, said Cliff Waldman, an economist at the Manufacturers Alliance/MAPI. 

“If you look away from the post-tsunami bounce, though, you see a significant weakening in some very basic supply chain sectors that the U.S. needs: machinery, non-metallic metals, and construction supplies,” said Waldman. Machinery output dropped 0.4 percent and construction supply manufacturing dropped 0.2 percent last month, the report shows. “Given this scenario, you’re going to actually see drops in ordering numbers and profits, and weakening hiring prospects in key manufacturing companies like Caterpillar, John Deere, and others who produce supplies for other manufacturers.”

Moreover, the manufacturing rebound in autos and electronics does not add jobs in those industries, Waldman said.  Auto companies, including Ford and Chrysler, were expecting the manufacturing bounce-back, and are fully aware that this temporary phenomenon is now being dwarfed by a weak global economy. “Auto companies see the U.S. economy at a standstill and the emerging markets that they counted on to lift them in 2008 flailing….hiring probably isn’t part of their game plan right now, and I don’t think today’s information will change that course,” Waldman said.