Firms are likely to cut back investment spending, depressing overall economic activity further, if they have a negative outlook on business conditions. Machinery orders, another important indicator of business fixed investment spending, dropped 20 percent in May relative to their year-ago level. Construction orders slid nearly 28 percent. As the economy has slipped into recession yet again, the labor market has weakened. The unemployment rate in May remained at the postwar high of 4.1 percent.
Consumer confidence falls, dragging retail sales lower.
Inventories remain stubbornly high, inducing further production cutbacks, etc. We do not expect the economy to stabilize until the effects of the fiscal stimulus package begin to kick in, probably later this quarter. In the meantime, we look for the dollar to grind steadily higher against the yen. United Kingdom Data over the past two weeks has indicated that the slowdown in U.K. economic activity is becoming more widespread. As shown below, manufacturing output, which has been battered by sterling s strength, declined 0.4 percent further in May. Survey data for June showed that output likely remained weak in that month, and that orders continued to run off.