The latest economic data from America were disappointing. The ISM index of US manufacturing, widely considered one of the best leading indicators of American growth, fell to 49.7 in June from 53.5 in May. As the 50 mark separates expansion from contraction, this means the sector is shrinking for the first time in three years. Consumer spending was flat in May and consumer confidence fell to a six-month low last month. However, spending on construction rose to a two-and-a-half- year high.
What the commentators said
“Largely immune from the economic and financial tribulations” elsewhere in the first half of 2012, “it now turns out that America is in trouble as well”, said Fxpro.com. As far as the ISM is concerned, the “collapse” in new orders for manufacturers was “particularly worrying”. The downturns in Europe and China are weakening global demand for American goods and “making US manufacturers wary of ramping up production and investment”, said Neil Shah in The Wall Street Journal.
Consumption, which accounts for around 70% of GDP, is also looking subdued. “The consumer is under pressure from the weak jobs market and falling [petrol] prices are simply not enough”, said IHS Global Insight’s Paul Edelstein. With growth dangerously close to stall speed, another problem is looming: the so-called fiscal cliff.
Tax hikes and spending cuts worth 5% of GDP kick in on 1 January unless lawmakers – already deeply divided and distracted by the impending election – vote to delay or offset them. The uncertainty bodes ill: Reuters.com pointed out that small businesses are already becoming more cautious about the outlook and deferring major decisions until the situation is clearer.
Given the increasingly shaky American outlook, said James Mackintosh in the FT, it’s hard to see American stocks continuing to outperform their European counterparts – especially as the continent’s equities are considerably cheaper.