Orders, excluding transportation, fell in October and November, but rose in December, making up some but not all of the prior declines. Unfortunately, the rise in orders is very unlikely to have continued in January. This up and down pattern, leaving the ordering rate lower than it was three months prior, is likely to be the pattern through the entire first half of 2008 — and that means not enough new orders to sustain more than minimal increases in total industrial production.
After rising at an almost 5 percent annualized rate in the third quarter, the economy only grew by 0.6 percent in the fourth quarter. That growth estimate isn't likely to be sharply revised. That's a big shift in momentum and has contributed to the feeling that a recession has started. Moreover, the economy isn't growing much faster in the first quarter, nor will it in the second quarter.
Look for personal income to have risen a little faster (0.3 to 0.4 percent) than spending (perhaps no more than 0.2 percent). This is an important relationship. Nervous consumers are increasing spending more slowly than income. That won't change until consumer expectations perk up — certainly not before the summer at the earliest.
News that price increases are not being slowed by a weak economy reinforces the negative tone. So too does the nearly 20-cent rise in the price of a gallon of gasoline just as the annual spring run-up in gas prices gets under way. Elsewhere, the signs are pointing to some loss of economic momentum in Europe. There too, growth may be slowing but not inflation pressures. These two trends could be the dominant themes in economic news right through the spring. The third trend is likely to be continued financial market turmoil, especially with respect to credit markets.
