Disappointing day for economic data, but still no sign of recession

At least on the surface, the economic data was rather disappointing today. That said, it wasn't that bad and there are some bright spots in there as well.

The bad news was that consumer spending was weak in December. In fact, "real" (inflation-adjusted) consumer spending was actually down slightly, $900 million at an annualized rate which is was a mere $75 million. Yes, that was in fact a decline, which is what we look for in a recession, but it was way too slight to constitute the kind of "significant" decline characteristic of a recession. Nonetheless, it was a negative data point. To repeat, the good news is that there was not a significant decline in consumer spending.

The better good news was that real incomes rose modestly in December. The gain of 0.2% was modestly larger than the -0.2% decline in November. The bad news is that even after the gain in December, real income is still slightly less (-0.13%) that its peak in September. That is technically a decline from the peak, which is what we look for in recessions, but is still way too slight to constitute a "significant" decline that is needed to mark a recession.

The data was negative on the unemployment claims front, but not by much. Initial claims (375,000) rose, but are still well below the 400,000 threshold typical for a recession. In fact, the 4-week moving average of initial claims (325,750) is only modestly above the level a year ago (310,250) and still well below the 400,000 threshold typical for recessions. Continuing claims did tick up, but the 4-week moving average ticked down.

The weekly commercial paper report was fairly decent, continuing to grow after bottoming in the Fall. Overall, the commercial paper market is still fairly weak and there were decline in some sectors last week, but this incremental recovery is probably exactly what the financial markets need to rebuild a more solid foundation.

The Chicago PMI manufacturing report for January was rather negative, "at the verge of contraction", but at 51.3 is still modestly in the black. So, the bad news is that the manufacturing sector is quite sluggish, but the good news is that this is further evidence that the U.S. economy was not in recession in December or January. In theory, the Chicago PMI is a "harbinger" for the more-important ISM Manufacturing report that covers the entire U.S. rather than simply the Chicago region.

In short, we have yet another mixed bag, but still no sign of an imminent recession. Yes, the economy is "sputtering", but not in a way that suggests that it is really going to "conk out."

-- Jack Krupansky