The economic news in the United States was mixed last week. On Wednesday, the Commerce Department announced that durable goods orders plunged 4.2% in March due largely to a 47.6% decline in commercial aircraft orders. Excluding defense and transportation orders, the orders for core capital goods declined 0.8% in March, while the shipments of core capital goods actually rose 2.6%, so that is excepted to help boost first-quarter GDP estimates slightly.
Also on Wednesday, the Conference Board announced that consumer confidence slipped to 69.2 in April, which is down slightly from a revised 69.5 in March. Economists were expecting consumer confidence to rise to 70, so the April figure was definitely a bit of a disappointment. Lynn Franco, the director of the Conference Board’s consumer research center, said, “As was the case last month, the slight dip was prompted by a moderation in consumers’ short-term outlook, while their assessment of current conditions continued to improve.” Franco added, “Overall, consumers are more upbeat about the state of the economy, but they remain cautiously optimistic.”
This uncertainty appears likely to impact big-ticket items since those consumers who plan to buy a major appliance, a home or vehicle within the next six months all declined significantly, so the decline in durable goods orders may continue in the upcoming months.
The Fed confirmed in its FOMC statement that it is worried about unfolding developments in Europe. Last week, the Dutch Prime Minister, Marke Rutte, tendered his resignation after budget talks collapsed, which set the stage for impending elections and a new coalition government. Currently the Netherlands has an AAA credit rating, but bond yields are now rising relative to German bonds, so a downgrade is likely after the upcoming elections if the budget impasse is not dealt with decisively.
Speaking of elections, the runoff for the French Presidency is set between Nicolas Sarkozy and Socialist challenger Francois Hollande to happen on Sunday, May 6th, and it is widely anticipated that Sarkozy will be the next European leader to be ousted in the wake of the European financial crisis.
Markit reported last week that the preliminary composite for the eurozone purchasing managers index (PMI) slumped to 47.4 in April, which is down sharply from 49.1 in March. Since any PMI reading below 50 signals a contraction, it appears that matters are going from bad to worse in Europe. Germany continued to try buck the negative trend and its services sector reported an improvement, but its April PMI slipped to 46.4, which is the lowest level since July 2009.
France‘s April PMI decline to 46.8, which represents a six-month low. So with the two biggest economies in the eurozone contracting, the economic outlook in Europe remains very uncertain. I should add that on Thursday, the European commission announced that its economic sentiment indicator declined to 92.8 in April, down from 94.5 in March, which was a bigger decline than economists expected and the lowest reading since December.
Speaking of uncertainty, Britain‘s Office for National Statistics reported on Wednesday that its GDP declined 0.2% in the first quarter after contracting 0.3% in the fourth quarter, so a “double dip” recession is officially under way in the United Kingdom. Like Germany, Britain’s service sector continues to improve, but only slightly.
I know that this week’s lineup of global economic news is mostly negative, but I want you to know that I am watching these developments carefully. Right now, what I’m seeing is normal economic weakness that is to be expected following a global financial crisis. I will be in touch immediately if there is any news that causes immediate action on our part.