Economy Watch – Economic data out today suggest economic recovery cannot continue without government help
A raft of bad economic data out this morning pushed Wall Street toward its third bad day in a row, though stocks trimmed some of their earlier losses.
A terrible home sales number combined with weak construction spending and manufacturing data paint a picture of an economy that cannot recover without a sustained and substantial infusion of government cash. Not that I’m arguing for that.
The Dow closed down .42 percent at 9,732.53.
The broader S&P 500 closed down .32 percent.
The tech-heavy Nasdaq closed down .37 percent.
May pending home sales dropped 30 percent compared with April after the government subsidy homebuyer credit expired at the end of that month. Translation: Only government money was propping up the housing market, which cannot recover on its own.
According to the National Association of Realtors, the index number of buyers who signed contracts to buy existing homes in May came in at 77.6, down from 110.9 in April, as homebuyers rushed to take advantage of the government dole. Forecasters expected the index would drop to only 98.4.
Record-low mortgages are doing nothing to get people to buy homes. The 30-year fixed mortgage rate, released this morning, dropped to another historic low of 4.58 percent.
An index of U.S. manufacturing activity dropped in June to 56.2 from 59.7 in May, according to the Institute for Supply Management, which tracks the sector. The decrease also surprised forecasters, who expected it to remain unchanged. Any reading over 50 indicates an economy in expansion.
Finally, May construction spending fell for the fist time in three months, as — basically — government money ran out. With the end of the homebuyer credit, homebuilders stopped building homes, understanding that people would stop buying homes. In the public sector, work on infrastructure projects fueled by government stimulus is starting to pull back.
The big takeaway? It’s becoming apparent that this recovery, which began in March 2009, was based almost fully on government stimulus. The private sector has failed to kick in because it doesn’t trust the future. Without private sector money in this economy, we can do one of two things: deflate and contract, and we know where that leads — deep recession and possibly depression; or approve billions in new stimulus, which will only explode our already massive public debt and budget deficits, which was dragging states down one after the other.
Glad I’m not making the decisions.
