While service sector indicators continue to paint a mixed picture of the American economy, other sectors show a steady deterioration. Manufacturing is already in a deep and prolonged recession. Data from the U.S. factory orders report released on Aug. 4 shows a manufacturing sector that continues to contract, with new orders declining 5.6 percent from the previous year.
The question on most investors' minds is whether the consumer and service sectors will follow suit. Many analysts are uncertain. New data paints a conflicting picture.
Gross domestic product has declined in each of the past two quarters and now hovers around one percent. Both consumer and commercial loan delinquencies have bottomed out and are now starting to rise.
Prior to previous recessions, including the one eight years ago, there were notable and sustained increases in delinquent accounts of at least 90 days. In addition, foreclosure rates show a similar pattern. These data points would indicate that the economy is either in recession or about to enter one.
Other data, however, shows a stable or improving economy. The stock market has hit record highs. The Dow Jones Industrial Average, S&P 500 and NASDAQ indices continue to climb.
At the same time, fewer than 300,000 new claims for unemployment benefits are filed each week. The Federal Reserve's Beige Book shows slow and steady growth. All of this data would indicate that the economy is on sure and sound footing.
Meanwhile, some investors remain in a holding pattern, preferring to see the results of the elections in November, before moving one way or the other. Because of the political uncertainty, chief executives have shown hesitancy to commit to large capital investments as reflected in the U.S. purchasing managers survey. These worries have been magnified by the Brexit vote in the United Kingdom.
Depending on what happens over the next six months, the U.S. economy will either move forward with robust growth or weaken, forcing many companies to lay off staff and postpone expansion ideas.
Yet another camp has emerged arguing that the current structure of the economy is reflective of much bigger change. Their belief is that we are truly entering the age of the internet. This means that companies are increasingly leveraging the capabilities of big data, automation and electronic commerce to transform their businesses in a way that has been seldom seen since the 1920s. The result would be higher productivity per employee, more layoffs and smaller participation rates in the economy.
Whatever direction the economy goes, uncertainty will continue over the next six months until the the elections.