Evidence mounts that the US economy is “stalling out”

The MCI for February 2016 fell to 48.3 from 54.0 the previous month. Some 25.8% of Index respondents reported their belief that business conditions will worsen, an increase from 10.7% the previous month – with only 3.2% of executives responding that they believe business conditions will improve over the next four months, a decrease from 10.7% in January.

The same uncertainty extended to executives, some 16.1% of whom expect more access to capital to fund equipment acquisitions over the next four months, a decrease from 17.9% in January.  Furthermore, 71.0% of survey respondents indicated they expect the “same” access to capital to fund business, a decrease from 75.0% the previous month.  12.9% expect “less” access to capital, an increase from 7.1% last month.

Harry Kaplun, president, specialty finance, Frost Bank, said: “Uncertainty on the international front and with energy markets is creating capital expenditure restraint. More clarity should emerge in the second half of 2016.”

However, even more starkly for the asset finance industry, only 3.2% of survey respondents believed demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, a decrease from 10.7% in January.  61.3% believe demand will “remain the same” during the same four-month time period, down from 71.4% the previous month.  Worryingly, 35.5% believe demand will decline, an increase from 17.9% who believed so in January.

Meanwhile, TrimTabs Investment Research reports that real-time tax data indicates the US economy is indeed stalling out.

David Santschi of TrimTabs stressed: “Real growth in income and employment taxes has been decelerating since last autumn, and it turned flat in recent weeks. If the trend persists, it would be consistent with a recession.”

Santschi explained that TrimTabs uses the income and employment taxes withheld from the paychecks of 141 million US workers as a proxy for wage and salary growth.  The US Treasury reports this data every business day on its Web site.

In a research note, TrimTabs explained that withholdings fell 0.2% year-over-year in real terms in the past four weeks ended Thursday, February 18.  This decline compares with growth of 2.0% year-over-year in December and 3.0% year-over-year in January.

“Withholdings can be volatile from month to month at this time of year due to the timing of year-end bonus payments, but the decelerating trend is clear,” said Santschi.

Santschi explained that withholdings are hardly the only sign of economic weakness.  The TrimTabs Macroeconomic Index, a correlation weighted composite index of weekly leading indicators, recently hit a 1½-year low.  Also, credit markets are flashing warning signals about growth, and a wide range of data points to contraction in manufacturing.

Paul Menzel, president & CEO, Financial Pacific Leasing, LLC said: “A flat domestic economy, muffled by presidential election uncertainty, will subdue growth in our industry for 2016.”

William H. Besgen, vice chairman board of directors, Hitachi Capital America Corp added: “Targeted business volumes seem to be holding in all of our business segments, but the big question is what will the impact of lower oil prices and the apparent negative sentiment created in the energy and banking community do to slow the rest of the economy?”