(Moneywatch) Data earlier this week showing that the manufacturing sector slumped in November to its lowest level in three years is just the latest indicator of a slowdown in the recovery. This is adding to concerns the U.S. may not have dodged the economic problems hitting the rest of the world.
The Institute of Supply Management said Monday that its index of manufacturing fell to 49.5 in November, from 51.7 the previous month, its lowest level since July 2009. Readings below 50 indicate that manufacturing is contracting. Also worrisome: The ISM's measure of factory employment shrank for the first time in more than three years, suggesting that businesses are putting off hiring.
October also saw another small drop in disposable personal income, or income after taxes, the third in the last five months. Income decreased 0.1 percent for the month, in contrast to an increase of less than 0.1 percent in September, according the Bureau of Economic Analysis.
Although the BEA blamed that decrease on superstorm Sandy, the cyclone didn't make landfall in the U.S. until Oct. 29, two days before the end of the month. The October income dip followed flat numbers for September and a drop in August of 0.3 percent. With unemployment remaining high, in part because more workers are returning to the labor market in search of a jobs, employers face less pressure to raise wages.
Since the recovery began in June 2009 through the third quarter of this year, disposable income has grown just 1.2 percent. By contrast, inflation-adjusted gross domestic product per capita has increased 4.7 percent over the same period, according to the Commerce Department. That suggests consumer spending is driving economic growth, even as people lack the income to sustain their spending indefinitely.
The spending hike accounted for more than a third of the 2.7 percent increase in GDP in the third quarter, while disposable income for the same period was down 0.1 percent. Much of that growth came from temporary factors, like government spending on defense, which means there is a need for other drivers if the economy is going to continue to expand.
As a result, many analysts are predicting a sharp pull-back in growth through the end of the year. Macroeconomic Advisers this week estimated fourth-quarter growth at a paltry 0.8 percent.
Another impediment to long-term growth: High unemployment and low wages are making it hard for people to repay their student loans. A recent study by the New York Federal Reserve found that at least 11 percent of student loans were delinquent in the third quarter, and that rate may in fact be much higher:
These delinquency rates for student loans are likely to understate actual delinquency rates because almost half of [new student] loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle, delinquency rates are roughly twice as high.
Meanwhile, businesses may be putting off investing and hiring until Congress and the Obama administration finish wrangling over the so-called fiscal cliff. Uncertainty over taxes and the impact of scheduled government spending cuts on the economy is making it hard for companies to plan and keeping their spending in wait-and-see mode.