IBD made the case last week that the freshest incoming data reflected a moderating pace of economic recovery. This week's data confirm the trend, with weekly retail sales numbers sliding further, the four-week average of jobless claims ticking higher and Midwest manufacturers' order books growing much more slowly in May.
While the stock market is being buffeted by numerous cross-currents from China to Europe to the Gulf of Mexico "” none particularly positive for global growth "” it also appears to be coming to terms with slower growth prospects and signaling an end to the V-shaped recovery story.
The stock market may have a mixed track record when it comes to predicting recessions, but it's much better at forecasting directional changes in growth, notes Lakshman Achuthan of the Economic Cycle Research Institute.
Yet the slower growth story is one that still seems to be sinking in, if commentary from economic analysts is any sign.
Take this headline from Barclays Capital regarding Thursday's durable goods orders data, which downplayed the weaker core orders in April and emphasized the longer trend and much better numbers in March.
"Strong trend in U.S. capital goods orders remains despite decline in April."
And this one:
"Soft April core US retail sales but upward revision to Q1."
At most points of the business cycle, it's usually a good idea not to make too much of monthly swings in volatile data series. But when all the trends point in the same direction, there's a good chance that the latest swing is more than noise.
The takeaway from May data is that the apparent beginnings of a downshift in growth in April have become an established trend.
The Philadelphia Fed's gauge of regional manufacturing showed the new orders index slipping from 13.9 in April to 6.1 in May, even as shipments jumped, suggesting weaker growth on the horizon.
The new orders index in the New York Fed's Empire State manufacturing survey also sank in May, falling to 14.3 from 29.5.
Chicago Purchasing Managers survey data out Friday told a similar story, with the index of order backlogs in May sliding from 61.4 in April to 52.7, much closer to the 50 treading-water level. Meanwhile, the survey showed inventories increasing at the fastest pace since November 2006 and the employment gauge turning ever-so slightly negative for the first time in five months.
Slower growth in manufacturing should come as no surprise, given that the boost from inventory rebuilding is mostly behind. But if the consumer downshifts at the same time as the factory sector, it could be a cause for concern, given that inventories accounted for 1.65 percentage points of the 3% annualized real GDP growth in Q1.
And recent data do suggest that the retail spending boomlet earlier this spring has given way to more moderate spending.
After six straight weeks of increases, same-store sales at major chains have fallen in three of the past four weeks, the International Council of Shopping Centers reported on Tuesday.
Those declines have seen the year-over-year gain in sales slip from 5.5% to 1.3%.
While the downward shift in the short-term data may overstate the trend, it is worth paying attention to because it fits with the bigger picture.
Consumer spending earlier in the year was fueled partly by a record tax-rebate season, including an extra $30 billion in refundable credits for those without tax liability, according to congressional estimators.
On the other end of the income spectrum, economists say, spending has been boosted by a 14-month stock market rally that has hit turbulence of late.
Now both of those consumer drivers have receded. However, Friday's personal income data did offer a hopeful sign, showing that real disposable income grew 0.5% in April. If healthy income gains are sustained, a consumer soft patch may be short-lived.
The key question is whether job growth will be held down by moderating factory and consumer activity, or whether income gains will keep those sectors from slowing too markedly.
Those betting on decent, if not buoyant, job growth expect that healthy corporate profits will give firms the resources and motivation to invest and expand.
Economic prognosticators IBD checked in with for last week's story saw growth slipping to a below-consensus 2.5% in the second half of 2010.
While hardly upbeat for this early stage of recovery, such a forecast still implies respectable consumer spending gains and job growth (payroll growth of 100,000-plus per month).
Asset manager Bridgewater Associates is less sanguine, believing growth could slip to just 1.1% in the second half, amid negative real wage growth, waning stimulus and state and local government budget cuts.
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