US economy stumbles still despite some positives

16 May 2008 19:26  [Source: ICIS news]

WASHINGTON (ICIS news)--Despite residual strength in consumer spending and a glimmer of improvement in the housing sector, US economic indicators broadly suggest a continuing downturn, a top chemical industry economist said on Friday.

 

Kevin Swift, chief economist at the American Chemistry Council (ACC), noted that the Commerce Department’s housing report issued earlier on Friday showed some positive news, with surprising gains in building permits issued in April, up nearly 5% compared with March.

 

“This suggests some life in the housing sector may be returning,” Swift said in his weekly outlook on the economy.

 

Building permits are issued by local governments when contractors are ready to start work on new home construction, so they are seen as a solid indicator of the near-term health of the housing sector.

 

Home construction is a key downstream consuming sector for a wide variety of chemicals and chemicals-derived products.

 

Swift also noted that while US retail sales - a key measure of consumer spending and confidence - declined by a slim 0.2% in April, that narrow negative showing was due chiefly to a continuing malaise in the automotive sector.

 

“Excluding autos, retail sales were up a stronger than expected 0.5%,” Swift said.  Consumer spending is the principal driving force of the US economy, accounting for as much as 70% of commercial activity.

 

Swift said the federal stimulus plan is apparently beginning to work some effect on the national economy.

 

In early February the US Congress approved a $168bn (€109bn) package of personal tax cuts and business tax credits to help rekindle economic growth.  Those payments to US taxpayers have been trickling out since early last month, and Swift said they may have contributed to April’s improved retail sales figures.

 

However, he noted that the effect of the stimulus payments will be short lived and will dissipate by the end of the third quarter.

 

Despite positive signs in retail sales and building permits, Swift said other bellwethers provide “further evidence of a continuing downturn”.

 

US industrial production and capacity utilization both fell 0.7% in April.  “After two quarters of essentially flat activity, the decline in industrial activity appears to be accelerating,” Swift said. 

 

In addition, he said, “the softness in industrial production and ongoing job losses are suggestive of a mild recession”.

 

($1 = €.65)

 

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Author: Joe Kamalick
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