Economic reports indicate that the pace of business activity has slowed. Current dollar GDP slowed to just over a 4% annual rate between the first and second quarters. In June, consumer spending and personal income showed no change from May.
With Fed policy turning less accommodative, some slowdown in activity was likely to occur. Even so, the economy seldom moves smoothly one direction. Even if it did, reported numbers often provide misleading information. They are rough estimates based on limited data.
The ISM surveys of purchasing managers provide some of the more reliable information on business activity. July numbers show that both the economy and new orders continue to increase, albeit at a slower pace than earlier in the year. This suggests that the reported pause in spending in June was an aberration.
While Fed policy continues to show no change in liquidity through June, the relationship between liquidity and spending can be fairly loose. Since the slowdown in recent months appears greater than anticipated, it would not be surprising for business activity to show some modest signs of improvement in the months ahead.