Economic Notes: The Ups and Downs of a Slow Rebound
6/21/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
The economy’s schizophrenia was on display last month in the goods producing sectors as industrial output rose while housing starts tumbled.
The industrial sector recorded a 1.2% monthly increase in May. Utility output jumped 4.8% on the belated arrival of warm weather. Factory output has increased for five consecutive months and is up 8.8% since June 2009; automobile production has almost doubled since that sector’s near-death experience.
Despite the steady rise in output over the past year – and increased employment for five consecutive months – capacity utilization remains well below pre-recession levels.
With new home sales spiking on the impending expiration of the Federal homebuyers’ tax credit, construction spending rose slightly. The increase appears to have come at the expense of future activity, however, as homebuilders further curtailed their construction plans after the credit’s deadline passed.
While tax credits temporarily stimulated homebuilding, nonresidential construction appears to have found a bottom in the past two months. This is partially due to an increase in public sector spending (+4.4% since February) funded by last year’s stimulus package.
Private nonresidential activity also stabilized in the past two months due to an acceleration of spending on power-generating and manufacturing facilities. Commercial construction (e.g., offices, hotels, retail) remains moribund, however, and this is likely to persist until job growth reduces vacancy rates in existing properties.
While the industrial sector’s gains should outweigh the construction sector’s weakness, attention should be given to the recent pause in retail spending and the decline in manufactured exports.
Neither is immediately threatening but, should they persist, the goods producers could turn from schizoid to fetal.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.
Patrick J. O’Keefe is director of economic research at J.H. Cohn LLP. He can be reached at pokeefe@jhcohn.com or 877-704-3500.