Construction spending plunged in January: No doubt due to the fact that we're still sitting in this subprime mortgage mess, where Americans can no longer afford to pay for their interest-adjusted mortgage payments, and banks are stuck with a pile of foreclosed homes that they can not sell to recoup their own losses. But now it is going beyond the housing construction. This MSNBC story is reporting that construction spending plunged by 1.7 percent in one of the biggest nosedives in 14 years. And if you look at the graph below, you will see that construction spending has been dropping since September, 2007.
Graph showing construction spending for the past 13 months. From MSNBC.This is bad. Not only did private builders cut spending on housing projects by 3 percent, but they also cut commercial construction projects by 1.2 percent in January. These commercial construction projects included transportation facilities, communications facilities, hotels and motels. Government spending on public works projects were cut by 0.2 percent in January, however these cuts were represented by state and local governments. What does this mean? The recession in the home construction industry is now extending into the commercial construction industry. Companies are looking at the mess in the U.S. housing market, and fearing that the U.S. is heading into a recession. These companies are then cutting back on business spending, which includes constructing new commercial projects. And of course, the bad economic news may be worrying consumers, who would then cut back on spending. I think we are starting to see the first signs of an economic contraction in the U.S. Moody's Economy.com's chief economist Mark Zandi remarks that this plunge in construction spending could be a "self-reinforcing downward cycle."
U.S. manufacturing contracted in February: This MSNBC News story reports that U.S. manufacturing activity dropped in February to its weakest level in almost five years. The Institute for Supply Management said that the February manufacturing index registered at 48.3--the weakest since April 2003. A reading below 50 shows an economic contraction. The MSNBC story is reporting that manufacturers are struggling with increasing costs of raw materials and the sluggish demand in the housing market. Industries reporting contraction included furniture, textiles, machinery and chemical products. Industries reporting expansion included apparel, leather, wood, plastics and rubber, food and beverage.
Consumer spending stalls in January: We are definitely heading into a nasty recession. According to this MSNBC News story, the Commerce Department reported that consumer spending rose 0.4 percent in January, mainly due to increasing food and energy costs. Take away the effect of inflation on rising prices, and consumer spending showed no gain in January. This is the second straight month that real spending failed to advance.
Consumer confidence is also dropping. According to the Reuter/University of Michigan, the final reading on consumer sentiment fell to a reading of 70.8 in February--the lowest final monthly reading in 16 years and down sharply from 78.4 in January. The Conference Board reported that its consumer confidence survey also dropped in February to the lowest reading since before the start of the U.S. war in Iraq in 2003. The American consumer is hurting in this economy--whether it is through lost jobs or foreclosed homes. And now the hurt is starting to ripple through the U.S. economy with stalled consumer spending, contracting manufacturing, and plunging construction spending. It is almost like we're looking at the perfect storm to slam into the U.S. economy.
Now let us look at job losses. I found three headlines on job losses that really say something about the U.S. economy. The first two are about the auto industry. They are GM closes more plants; 12,000 workers idle, and BMW to cut another 5,600 by end of 2008. Now I've talked about GM, and how GM's CEO Bob Lutz has called global warming a crock of sh**! GM also reported a huge $39 billion dollar loss last year. GM has tried to market high profit, gas guzzling, SUVs to the American market, and the American people were happy to buy up GM's SUVs--as long as gas prices were low. But now with the high gas prices, Americans are rejecting GM cars for Japanese hybrids. It is interesting that with the high prices of gas, and the successful sales of Japanese hybrids, like the Toyota Prius, that GM is now jumping into the hybrid cars with a hybrid engine they hope to market by 2010. Because of bad business decisions, and possibly corporate greed, GM is currently hurting in this declining U.S. auto market. But then there is the second story on BMW. Here is a premier luxury car maker that is shedding over 5,000 jobs. Is BMW seeing signs of a slowing luxury car market, and the company is cutting back on labor costs as an early first-step response to this slowdown? Auto sales are the second biggest purchase that American consumers make (The first being a house). If Americans do not have money in their pockets, they are not going to purchase cars. These two stories of job losses within two different car companies may be another warning that we are heading into a bad recession.
Now let us go to the third story on job losses. Citigroup's Job Cuts Could Total More Than 30,000. This CNBC story really reinforces what we already know--the financial industry is still being hit hard by the subprime mortgage meltdown. Citigroup was a major player in packaging the subprime debt into securities, and selling them to investors. The importance of this story is that the subprime mess will not go away as quickly as either the Bush administration, or economists, may be hoping for. This mess is going to take several years to sort itself out.
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