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Thursday, August 4, 2022
In 2008, comedian Louis C.K. appeared on Late Night with Conan O'Brien and delivered an early version of a post-postmodern worldview that partly defined American culture in the 21st century: "Everything is amazing and nobody is happy."
One part timeless lament from a middle-aged commentator, another part biting observation of an increasingly connected world grappling with the choices of buying the new iPhone 3G or BlackBerry Bold — a pose of perpetual dissatisfaction that is again making its way through the ether during our post-pandemic economic recovery.
Economic surveys exemplify the current socio-economic anxiety.
On Wednesday, the Institute for Supply Management (ISM) released its latest survey on business activity in the services sector. The closely-watched report showed activity in the sector — which accounts for about 80% of GDP growth — expanded at an accelerated rate in July.
This particular reading has now shown expansion in the services sector for 26-straight months. Only twice in the last 150 months has this reading been negative.
Nevertheless, a certain feeling that Kyla Scan has dubbed the Vibecession continues to wind its way through the business world.
"Can feel the economy weakening," an executive in the support services business told the ISM. "Clients are making appropriate moves in anticipation of a recession."
"Holding steady, but some headwinds are definitely ahead on the economic front," said another exec in the utilities industry. "However, supply chain issues appear to be easing, though still not great."
To be clear, the ISM's report showed business activity and new orders both accelerated from the prior month. Imports, inventory, and employment were the only three of the report's eleven sub-indexes that saw a slowdown.
"Despite increased concern of a downturn, there was little sign of a slowdown in the details of the report," economists at Wells Fargo led by Tim Quinlan stated on Wednesday. "The staying power of consumers will eventually run out, but the July ISM services data further support our view that service-sector activity will hold up well in the near-term."
But as is so often the case in the current economic moment, different data sets nominally focused on the same pocket of the economy can tell diverging stories. In a separate report out Wednesday, for instance, the July read on the service sector from S&P Global showed an outright contraction in activity during July, with output falling at the fastest pace since May 2020.
And, of course, businesses aren't alone in being skeptical that this economic moment is much beyond a recession: In June, consumer sentiment fell to a record low and a slight rebound in July offered little consolation. Two straight quarters of negative GDP growth — which set off a hot debate about what constitutes a formal recession — don't inspire confidence, either.
"U.S. economic conditions worsened markedly in July, with business activity falling across both the manufacturing and service sectors," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "Excluding pandemic lockdown months, the overall fall in output was the largest recorded since the global financial crisis and signals a strong likelihood that the economy will contract for a third consecutive quarter."
And because nothing is straightforward in today's economy, S&P's report showed employment — one of only three areas that contracted according to ISM — actually expanded in July.
To recap: We have two reports. One says the service sector is growing, and the other says the sector is contracting. But the report showing overall growth suggested employment continued to contract while the report showing growth contracting suggested employment is growing.
If you can follow that thread, it pretty well sums up the state of the economy.
Late last month, we argued the biggest challenge in getting to a "one big thing"-type view about the present state of the U.S. economy is that we're still working off the excesses of 2021. And that, in turn, makes it hard to figure what a post-pandemic steady-state might be.
Furthermore, the dynamic holds true for both corporate strategic initiatives and forecasts about economic data.
"Looking ahead, services activity will be fairly muted as hot inflation, tighter financial conditions, supply chain stress, downbeat sentiment and softening spending restrain growth," Oren Klachkin, lead U.S. economist at Oxford Economics, wrote in a new note. "The recovery's best days are clearly in the rear-view mirror, but this doesn't mean an economic downturn has begun. We think fundamentals are strong enough to prevent a recession this year, though the window to achieving a softish landing is narrowing."
Perhaps not a picture that screams "everything is amazing," but it's clear that the economically content among us are becoming fewer and further between. Even as the expansion continues.
What to Watch Today
7:30 a.m. ET: Challenger Job Cuts, year-over-year, July (58.8% during prior month)
8:30 a.m. ET: Trade Balance, June (-$80.0 billion expected, -$85.5 billion during prior month)
8:30 a.m. ET: Initial Jobless Claims, week ended July 30 (260,000 expected, 256,000 during prior week)
8:30 a.m. ET: Continuing Claims, week ended July 23 (1.383 expected, 1.359 during prior week)
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