Is the U.S. Recovery Slowing?

| About: BNP Paribas (BNPQY)

By Rom Badilla, CFA

Today’s economic data releases suggest that the U.S. recovery may be slowing as we head into the second half of 2010. The Commerce Department released figures that both Personal Income and Personal Spending failed to grow in June, following a tenth of a percent downward revision in the May readings to final levels of 0.3 and 0.1 percent, respectively. June’s flat readings disappointed economists as surveys called for an increase of 0.2 percent in Personal Income and a move higher of 0.1 percent in Personal Spending.

BNP Paribas (OTCQX:BNPQY) added the following look behind the headline numbers in a morning email to clients:

Personal income did not change for the first time since September 2009, consistent with the aggregate income data from the June employment report, which were particularly weak dropping by 0.5% m/m. Annual benchmark revisions were released with this report. Personal spending trajectory was revised notably down, which resulted in a much higher savings rate. Savings rate in June was 6.4% up from an upwardly revised 6.3% in May (was previously estimated at 4.0%). Core PCE was flat on a monthly basis, implying a y/y rate of change of 1.4% down from 1.5% m/m in May.

Factory Orders unexpectedly dropped in June giving more reason of a slowdown in manufacturing activity, according to the U.S. Department of Commerce. Factory Orders fell by 1.2 percent versus surveys of a decline of 0.5 percent. To add insult to injury to the disappointment of missing expectations, the prior period’s reading was revised downward from an initial release of -1.4 percent to a final -1.8 percent.

Pending Home Sales dropped 2.6 percent on a month over month basis in June as government tax incentives expired for prospective home buyers. Economists were expecting a bounce of 4.0 percent after May’s massive decline of nearly 30 percent.

Pending Home Sales gives insight into forthcoming Existing and New Home Purchases which does not bode well for the millions of homes sitting idle on the market. BNP Paribas added that:

Pending home sales are recorded when a sale contract is first signed. Existing home sales are recorded when a mortgage is closed, implying there is usually a one to two months lag between the series. Therefore, pending home sales freefall points to further weakness existing home sales in July. Housing demand outlook for this year remains very uncertain.”

The Bureau of Economic Analysis released its Personal Consumption Expenditures Price Index [PCE] which is another gauge of inflation and price pressures. The PCE Core index was flat for June as surveys called for a month over month increase of 0.1 percent. In addition, PCE Core for May was revised downward by a tenth of a percent to a final reading of an increase of 0.1 percent. Given this data, inflation expectations should remain subdued in the coming months.

Author's Disclosure: None