Mixed Signals From U.S. Economy
The factory orders and new home sales data were still pretty weak in absolute terms and only represented a recovery from really weak to only relatively weak. The ISM indexes, while not being particularly impressive in absolute terms either nevertheless showed much more strength than the other data. The other data is certainly consistent with my view that the U.S. economy is slipping into a recession, while the ISM indexes indicates that the U.S. economy is continuing with its slow but positive growth. So, the flow of data is clearly a case of mixed signals.
However, the case for the recessionary scenario remains strong with residential investments still having a lot of more room to fall, with business investments looking weak with profits from domestic operations declining and with private consumption looking weak with weak income growth and less mortgage equity withdrawals.
Against this is oil prices which are well below year ago levels and a falling dollar and booming foreign economies which helps boost net exports and profits for U.S. multinational companies (and thus stock prices).
Which of these counteracting forces will prevail remains to be seen, although the fact that the forces of weakness are much bigger certainly means that they are the most likely winners. Regardless of whether growth falls below zero or not, the fact that there are two counteracting forces at works means that growth is not likely to be much above zero if a recession is avoided- and that a recession is not likely to be that severe.