US economy limps into 2-H, investors, consumers nervous

A lot of weak economic data is casting doubts over expectations of a pick-up in growth in 2-H of this year in the US.

From manufacturing to job growth to consumer spending, the numbers are grim, economists wonder if they need to dial down forecasts for the rest of the year.

The US economy grew at a 1.9% annual pace in Q-1 and estimates for Q-2 period are coming in around 1.5%

A high level of uncertainty as Europe struggles with a debt crisis and as the United States stares at the prospect of a sharp budgetary tightening at the start of next year seem to have led businesses and ordinary Americans to watch their money carefully.

While the US fiscal cliff, a combination of expiring tax cuts and automatic government spending cuts will be hit in early Y 2013, if Congress does not act, an increasing economic toll could be exacted in 2-H of this year.

Companies and households won't know what their tax liabilities are going to look like in Y 2013, what the regulatory or spending backdrop is. It's going to be an uncertainty which weighs on people's ability to make plans.

Growth in 1-H of the year was driven by automobile production and sales, which accounted for about 61% of the period's 1.9% increase in GDP.

Sales were boosted by pent-up demand after last year's earthquake and tsunami in Japan left US showrooms short of popular models.

Economists say that the demand now looks exhausted. They also point out that most of the purchases were by companies replacing their fleets. That suggests less support for the economy from autos in the future, particularly since much of the spending was funded from savings.

With gasoline prices coming off the higs, there is less of an urgency to go out and trade in gas-guzzlers for more efficient cars. Consumers are not going to shoulder the recovery, spending is not going lead overall growth.

The housing market, where home sales and prices have trended higher in recent months, and should offer some support as demand for furniture and other household items picks up. Construction activity is also strengthening, but homebuilding accounts for only about 2.3% of GDP.

Even more worry is the persistent service sector sluggishness. Services account for about 65% of consumer spending and around 45% of GDP.

The sector grew at a rate of just 0.8% in Q-1 after a 0.4% gain in Q-4 of Y 2011.

When services are growing at less than 1% in the US, there is a tough road ahead. It is not going to be easy to have higher growth rate, that is a fact, and a difficult one for Obama to face in this election year IMO.

Grim June jobs report, Romney hammers Obama's policy

Republican Presidential candidate Mitt Romney pounced on a weak US jobs report Friday to denounce President Barack Obama's economic policies, saying this kick in the gut has got to end.

Appearing before reporters in New Hampshire, Mitt Romney moved quickly to take advantage of a Labor Department report that said the US jobless rate held steady at 8.2% in June with a less-than-projected 80,000 jobs created.

The president's policies have not gotten America working again and the president is going to have to stand up and take responsibility for it, Mr. Romney said

US June Jobs report gloomy, just 80,000 Jobs added

US employers added only 80,000 jobs in June, a 3rd straight month of weak hiring that shows the economy is struggling 3 yrs after the recession ended.

The Labor Department said Friday that the unemployment rate was unchanged at 8.2%. The economy has added just 75,000 jobs a month in the April-June Quarter. That's 33% of 226,000 a month created in Q-1. Job creation is also trailing last year's pace through 1-H of Y 2012.

Stock futures fell modestly after the report came out. Dow Jones industrial average futures were down 24 pts before the report at 8:30 a, and were down 60 pts minutes later.

Yields for government bonds sank, an indication that investors were putting money into the Treasury market. The yield on the 10-yr US Treasury note was 1.59% just before the report and 1.57% after it came out.

A weaker job market has made consumers less confident. They have pulled back on spending, even though gas prices have fallen.

High unemployment could shift momentum to Mitt Romney, the presumptive GOP presidential nominee. An Associated Press-GfK poll released last month found that more than half of those surveyed disapproved of President Barack Obama's handling of the economy.

Dismal June job figures could also prompt the Federal Reserve to take further action to try to boost the economy. The US Fed last month downgraded its economic outlook for Y 2012. It predicted growth of just 1.9 to 2.4% for the year and little change in the unemployment rate.

Job gains in April and May were little changed from the department's previous estimates.

There were some good signs in the report. The average work week grew to 34.5 hrs from 34.4 in May, boosting many workers' paychecks. And average hourly wages rose 6 cents to $23.50. Hourly pay has increased 2% in the past year and is ahead of inflation, which has fallen in recent months along with gas prices.

About 33% of the jobs gained in June were in temporary services. Manufacturing added 11,000, its ninth straight month of gains. But growth in factory jobs slowed sharply in the second quarter compared to the first. Health care added 13,000 jobs and financial services gained 5,000. Retailers, transportation firms and government cut jobs.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.