In this report, D&B confirms a flat spot in US economic recovery for the first half of 2012. Unfortunately, the second half of 2012 is likely to reflect the same.
2. Most measures of U.S. economic activity showed signs of
KEY OBSERVATIONS a significant slowdown during the first half of 2012. This
• esitant recovery has stalled across most sectors
H economic slowdown is also evident in DB’s propri-
and regions etary Current Spend data, which tracks business activity
across industries. DB’s Overall Current Spend growth
• attern of uneven growth is likely to persist into
P
contracted by almost 6 percent in the second quarter
2013
2012, a significant decline in relationship to the healthy
• he business sector continues to make substan-
T growth of almost 7 percent in the final quarter of 2011.
tial strides in improving competitiveness, which
remains a favorable long-term trend Percent Changes from Previous Quarter
5.0% 12.0%
8.0%
The hesitant U.S. recovery continues to face significant 4.0%
headwinds and the pace of growth is likely to remain
3.0% 4.0%
subdued heading into 2013. DB’s proprietary analysis
across all sectors of the economy confirms that growth 2.0% 0.0%
has downshifted substantially, with few areas of the
1.0% -4.0%
economy demonstrating momentum. The struggling
recovery is certainly not good news for U.S. households 0.0% -8.0%
due to the limited growth in income and employment, Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12
but at the same time there remains evidence that the Gross Domestic Product
recovery will continue. In addition, there are a number Current Spend: Overall
of favorable developments occurring below the surface
Source: Bureau of Economic Analysis and DB Proprietary Spend Data
that bode well for the economy once top-line growth
resumes.
This erosion of current spend is noticeable not only for
the overall economy, but in most significant sectors of
Q3 2010 2010 2011 2011 2011 2011 2012 2012
Q4 Q1 Q2 Q3 Q4 Q1 Q2
Percent Changes from Previous Quarter the economy. For instance, the Manufacturing sector
experienced a downturn in the growth rate of Current
3.0% 15.0%
Spend, where growth rates fell from 3.35 percent in the
2.5% 10.0% first quarter to a dismal -5.57 percent during the second
2.0% quarter of 2012. This trend in Manufacturing Spend is
5.0%
confirmed by the Industrial Production Index for Manu-
1.5%
0.0% facturing, whose growth rate shows the same pattern—
1.0% falling from 2.44 percent to 0.41 percent from the first to
-5.0% the second quarter of 2012.
0.5%
0.0% -10.0% Another important sector of the economy where the
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12
downswing is apparent is Automotive. Current spend
Industrial Product Index: Manufacturing growth rates saw declines in both quarters of 2012
Current Spending: Manufacturing
compared to the last quarter of 2011. This trend, again,
Source: Board of Governors of the Federal Reserve System and is confirmed by the macroeconomic indicator, Personal
DB Proprietary Spend Data Consumption Expenditure for Motor Vehicles and Parts,
Q2 2010 2010 2010 2011 2011 2011 2011 2012 2012
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2
3. although with a one-quarter delay. This indicator shows
the same pattern with an increase in growth rate (13
percent) in the first quarter of 2012 only to see the
downturn in the second quarter (10.6 percent).
Beyond Manufacturing and Automotive, other sectors
confirm broad-based erosion in activity in the second
quarter of 2012 including Real Estate and Telecommuni-
cations (Table in Appendix). The flat spot in growth has
impacted firms irrespective of size and geography (Table
in Appendix). A snapshot of Current Spend by Geogra-
phy shows the worsening in the first quarter of 2012
and most regions continue to register negative growth
rates in the second quarter. Firms in the regions of New
England and Pacific show the lowest spend growth rates
in the second quarter of 2012 and the regions of West
North Central and West South Central have the highest.
The West North Central is the only region that shows a
positive growth rate during the quarter.
Unfortunately, this pattern of growth in fits and starts
has been a primary characteristic of the current recov-
ery. Based on DB’s proprietary analysis, we continue to So against this lingering gloom is there any reason to be
expect more of the same heading into the final months optimistic? The answer, based on our proprietary analy-
of the year. The recovery faces a number of structural sis, remains yes, albeit cautiously optimistic. As DB has
burdens that are complicated by key policy issues in- indicated previously, below the surface there are a num-
cluding fiscal policy issues across the developed world. ber of very favorable developments occurring, including
substantial improvement in the
financial health of the business
sector in the U.S. Performance
Percent Changes from Previous Quarter
data for second quarter confirms
40.0% 12.0% that this pattern of improve-
ment is continuing and by some
20.0% 8.0%
measures gaining momentum.
DB’s proprietary measures of
0.0% 4.0% delinquencies (percent of dollars
61+ and 91+ days past due) show
-20.0% 0.0% a continuous declining trend
for the overall economy, with
-40.0% -4.0% significant declines in the second
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12
quarter of 2011. A look at the
Personal Consumption Expenditure: Motor Vehicles and Parts percent dollars 91+ days past due
Current Spend: Automotive (one quarter prior)
for major industries presents the
Source: Bureau of Economic Analysis and DB Proprietary Spend Data
same bright picture. Delinquen-
3
Q3 2010 2010 2011 2011 2011 2011 2012 2012
Q4 Q1 Q2 Q3 Q4 Q1 Q2
4. cies continue to improve for all major industries since in Appendix). For both views, for all regions and size
the final quarter of 2011 (Table in Appendix). Wholesale classes, delinquencies have been on the decline since
Trade is the sector that registers the lowest percent of the final quarter of 2011. Not surprisingly, the firms in
delinquent dollars in the second quarter of 2011, while the lowest size class (1-9 employees) have the highest
Real Estate registers the highest. The Real Estate sector percent of delinquent dollars 91+ days past due, while
still seems to be reeling from its recession blows. the largest firms (500+ employees) have the lowest. Fi-
nally, by region, the firms in the Mountain region project
The same improvement is seen when delinquencies are the highest delinquencies and those in the West North
studied by geography and employee size class (Tables Central region project the lowest. The falling delinquen-
cies may be a sign that businesses are continuing
to grow at a slow pace despite the slowdown in
Deliquency Trend: Overall the economy.
8.0%
From DB’s perspective the latest flat spot in
7.0% the U.S. recovery is broad-based and disappoint-
6.0%
ing. Unfortunately, the second half of 2012 is
likely to reflect more of the same. The structural
5.0% impediments to growth remain substantial, and
4.0% the pattern of growth in fits and starts is likely
to persist. While this pattern of growth is disap-
3.0%
pointing, there remain bright spots that bode
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
10 10 10 11 11 11 11 12 12 well for the long-term including the substantial
Percent Dollars 91+ DPD improvement in the financial health of the busi-
Percent Dollars 61+ DPD ness sector. Not all is lost, despite the fact that
Source: DB Proprietary Delinquency Data some days it may seem that way.
4