US businesses say economy is stagnating

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The US economy is currently stagnating, according to business survey figures released today.

The sales managers’ index (SMI) compiled by World Economics dropped to a score of 50.8 in February from 51.1 last month. Scores above 50 imply the economy grew compared with the month before, with February’s score pointing to very sluggish growth.

Business confidence was at a three-and-a-half year low as both the manufacturing and services sectors lost momentum.

“The February SMI Index paints a gloomy picture for the US economy and indicates a continuation of the slowdown in the rate of economic growth which began in the second half of 2015,” said World Economics chief executive Ed Jones.

He added that the survey “suggests that economic conditions are likely to be challenging for the remainder of Q1 [January to March] 2016.”

The SMI sales index, which measures demand conditions facing individual firms and has a close correlation with GDP growth, stayed in contraction territory for the third month in a row. World Economics said it indicated negative growth as the first quarter of the year progresses.

The US economy grew at an annualised rate of 0.7 per cent in the final three months of the 2015, a sharp slowdown from two per cent in the previous three months.

The US Federal Reserve raised interest rates in December for the first time since the 2008-9 recession. Some economists have argued that the recent negative data and stock market declines mean the central bank may have to backtrack. However, Federal Reserve chair Janet Yellen said financial conditions had become “less supportive” of growth, but pointed out that the labour market was still in fine fettle.

Some economists share Yellen’s overall optimism and are blaming the slowdown on seasonal factors.

“Part of the weakness reflects seasonal adjustment – winter quarters have averaged lower figures in every year recently due to harsher winters. It is a statistical artefact and the Bureau of Economic Analysis is reviewing its adjustment methods. But markets will still take fright,” said Danae Kyriakopoulou, an economist at the Centre for Economics and Business Research.

Full story: US businesses say economy is stagnating: City A.M.

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