Posts tagged 'Economic Recovery'

Too many professional pessimists?

Some 231 pages of macroeconomic goodness has landed from the ECB. Click for the full July bulletin.

We turned straight to page 50, and the examination of predictions for economic recovery after recessions.

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We know you’re waiting…

From JP Morgan Asset Management. Tantalisation comes from the end of the black line, which you will note has perked.

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Odds of another US recession seen rising

The two-year-old US recovery’s staying power may be diminishing as consumers and the government pare spending, say five of the nine economists on the academic panel that dates recessions, Bloomberg reports. Meanwhile, a fall in US consumer spending is adding to economic woes. Consumers cut back on spending in June for the first time since September 2009 and incomes rose at the slowest pace in seven months in a further sign of sluggish economic growth, the FT says. Consumer spending fell 0.2 per cent over the month, following a downwardly revised 0.1 per cent rise in May, the commerce department said. Reuters reckons such lacklustre sentiment will weigh on growth.

Why prejudice is really, really bad for growth

Economists have long observed the inverse correlation between prejudice and economic competitiveness and economic development. Advanced economies tend to have less racism, religious intolerance, homophobia, and so forth, whereas less developed economies tend to exhibit more prejudice.

Of course, observing a correlation is not proof of causation (a fact that economists seem condemned to point out for all eternity – as modern day versions of Sisyphus). Read more

Does prejudice hinder economic growth?

For UBS economist Paul Donovan it’s not even a question, really

In a 16-page piece of research out this Thursday, he argues that “the issue of prejudice in society is not an abstract concept that investors can afford to ignore.” Discrimination based on race, gender, nationality, religion or sexual orientation, he says, are firmly linked to a country’s economic development. Read more

Around the world in 25 megabanks

…Around the world, and (potentially) sat on the face of the global recovery.

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US Treasuries confound bearish investors

US government debt notched up stronger gains in May than dollar-denominated private sector debt for the first time in six months, the FT says. The strong performance of Treasury debt flies in the face of the expectations of many investors, with big bond buyers such as Pimco reducing holdings of Treasuries on expectations of underperformance. Instead, yields on US government bonds have hit record lows for the year. On Wednesday, the benchmark 10-year US Treasury yield fell below 3 per cent for the first time since December. Meanwhile, FT Alphaville reports that Pimco’s Bill Gross is recommending investors ‘don’t buy expensive bonds’ in his latest allegory-riddled investment outlook.

Manufacturing loses steam in May

US manufacturing, the main engine driving the economy this year, stalled in May, heightening fears that the recovery is faltering, the FT says. Wednesday’s gloomy report was compounded by fresh data showing employment growth slowed sharply last month and followed dire house price numbers. The Institute for Supply Management’s purchasing managers’ index dropped to 53.5 from 60.4 in April, the slowest rate since September 2009 and the first time this year the gauge has fallen below 60. The figures missed economists’ expectations of a more moderate drop to 57.1. Readings above 50 signal expansion in the manufacturing sector. FT Alphaville notes those economic indicators keep disappointing.

Bond yields fall amid global growth fears

Benchmark government bond yields in the US, UK, Germany and Japan have fallen unexpectedly over the past seven weeks as investors take fright at weakening economic prospects and the still-critical eurozone debt crisis, reports the FT. The fall of 14 to 15 per cent in 10-year yields, the benchmark market interest rates for government bonds, has coincided with a sharp fall in inflation expectations in the same countries. Such a big move in bond markets is significant because the vast majority of investors at the start of 2011 thought government bond yields would rise consistently over the course of the year as economic growth normalised. USA Today notes that “the economic recovery that barely exists in the eyes of many Americans” is now two years old, with the Great Recession, having officially ended in June 2009.

Oil surge puts fragile US recovery at risk

The sharp rise in oil prices has created a series of economic risks and, once again, threatens the US economic recovery just as it seemed to be getting back on track, according to the FT. In the US, however, the direct effects should be limited. According to published information on the Federal Reserve’s economic model, a sustained $10 rise in the oil price cuts growth by 0.2 percentage points and raises unemployment by 0.1 percentage points for each of the next two years. However, the Guardian, echoing research by Capital Economics, says that a 10 per cent increase in pump prices would cost consumers $40bn a year, or a reduction in real incomes of 0.4 per cent. That would be enough to wipe out much of the stimulus effect of the cut in payroll taxes.

Goldman sees danger in US budget cuts

The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned, the FT says. The note from Alec Phillips, a forecaster based in Washington, was seized in the ongoing US budget fight by Democrats as validating their argument that the legislation approved by the Republican-led House of Representatives last Saturday would do significant damage to the US recovery. ABC News has a copy of the report.

Forecasts look to 3.5 per cent US growth

The biggest gains to consumer spending in four years likely boosted US economic growth in 2010′s last quarter, leading to a consensus forecast of 3.5 per cent in Friday’s GDP release, Reuters reports. Spending by consumers may have grown by up to 4 per cent, while spending on equipment by business is also expected to have maintained recent rises. Recent economic data actually suggests that 3.5 per cent may even be a lowball estimate, especially looking at ISM figures, Pragmatic Capitalist argues. FT Alphaville will hold a special Macro Live live chat session at 10:00am New York time / 15:00pm London time to discuss the GDP release and other indicators.

Citigroup gains lift Paulson funds

Paulson & Co, the world’s third-largest hedge fund manager, has told clients it has made more than $1bn from its stake in Citigroup over the past 18 months and expects US growth to accelerate this year, the FT reports. Citigroup was the most profitable position for Paulson’s flagship Advantage fund, which like all of the US fund manager’s funds has been highly geared to an upswing in US economic prospects. Paulson’s gains come despite investor fears that its funds have grown too large. “We have proved our ability to perform at current asset levels,” the letter added, arguing that market opportunities are enormous and all of the funds could be much larger.

UK growth hit by surprise fall

The UK economy contracted by 0.5 per cent in the last quarter of 2010, well below forecasts of 0.5 to 0.7 per cent growth, Reuters reports. The figures throw doubt on the government’s plans to start spending cuts in 2011. While the government’s statistics office said that heavy snow was responsible for some of the decline in growth, it acknowledged that any growth would have been ‘flattish’ even without it. Contraction will also challenge the Bank of England’s ability to raise rates, even as it faces the prospect of inflation well above its 2 per cent target at 4 per cent in 2011. Heavy snow has also obscured economic indicators for the United States during December, the FT reports.

David Rosenberg’s cartoon-ish 2011

David Rosenberg’s gone all cartoony.

The Gluskin Sheff analyst seems to have given up on on words and is instead using charts — and Loony Tunes — to illustrate his (very salient) points. Read more

US businesses add 93,000 jobs in November

US businesses added workers at their highest pace in three years in November to offer a fresh reason for optimism that the labour market recovery is gathering speed, the FT reports. Separately on Wednesday, the Institute of Supply Management said that manufacturing activity continued to expand in the US last month, but at a slower pace than before, adding to evidence of a modest economic recovery. The private sector added 93,000 jobs marking the 10th consecutive month of job creation, according to ADP’s National Employment Report. That was a stronger gain than economists predicted and the outlook was boosted by a positive revision to the previous month, which showed 82,000 jobs added rather than the initial estimate of 43,000.

US housing: bad to worse, then worse again

We said on Monday to expect more bad news from the US housing market, but we didn’t know it would get so bad so quickly.

Following Tuesday’s awful existing home sales numbers, the Census Bureau announced on Wednesday that new homes had sold at an annual rate of 276,000 in July, including seasonal adjustment. That’s a 12% decline from June, and a 32% drop from July 2009. Read more

Fed feeds market jitters on economy

Tuesday’s plunge in existing home sales may well have pushed the Dow back under 10,000 and sent the 10-year Treasury yield to lows not seen since the panic of early 2009, as the WSJ reports — but mixed signals from the Federal Reserve are probably worsening fear in the market, FT Alphaville observes. Having no fewer than seven hawks on the Fed’s board will have that effect, writes Scott Sumner at Money Illusion, suggesting that a rift between Fed policymakers and the market has widened in their responses to the economic data. That’s true even if a double-dip isn’t the base case, notes the FT’s Gavyn Davies.

Stop the market – the Fed wants to get off

Oops.

The Federal Reserve didn’t mean for its recent QEII announcement – that it would be reinvesting proceeds from its maturing securities portfolio — to so greatly affect investors. Read more

Clutching at the Chinese

It’s bullishness, but not as we know it.

Here’s the Nomura take on investing in a world beset by a slowing US recovery: Read more

German GDP surge lifts eurozone hopes

Buoyant exports and a decline in the value of the euro allowed Germany to reassert itself as the economic growth engine of the eurozone in the second quarter, the FT reports, after gross domestic product expanded at a stellar 2.2 per cent rate compared with the previous three months. European bourses and the euro rallied on the data, which dwarfed a forecast 1.3 per cent rate, Reuters says. But growth this robust can’t be sustained into a second half beset by US and Chinese economic fear, the WSJ notes.

In any case, it’s more evidence of a two-tiered recovery in Europe, the FT adds – and perhaps across the Atlantic, FT Alphaville notes, after observing that Bunds now look like the real global risk-free rate after ten years, compared to Treasuries filling this position for the next two years. Or so the negative US swap rate indicates, for now.

Stock market terror on global growth fears

Global equity markets faced picking up the pieces on Thursday after investors sought safety in government bonds as a deteriorating economic outlooks led by the US fanned an aversion for holding risky assets, the FT reports. The White House warned that the US was “not immune to slowdowns that might start in other parts of the world” after statistics brought grim news of a widening US trade gap and faltering industrial output in China. The Dow has now lost the year’s gains, the WSJ reports. Asian stocks continued to tumble on Thursday, Bloomberg reports.

These aren’t the only reasons for the market’s volatility, Pimco’s Mohamed El-Erian writes on FT Alphaville — investors increasingly perceive fatter tail-risks and a nasty deflation trap. Beneath it all, the Fed’s slight shift this week towards monetary easing has failed to bring clarity to the market, Reuters says.

BoE: Great uncertainty and a choppy recovery

As usual, the Bank of England’s latest inflation report has been published with an impressive array of fan charts outlining the Bank’s view on inflation, GDP and other economic factors.

The general trend continues to be the expanding dimensions of the fans themselves — highlighting the growing level of ‘uncertainty’ anticipated by the Bank for the UK economy. Read more

Chinese output growth weakens, extending gloom

Industrial output in China has risen the least in almost a year and retail sales growth has also softened in the latest statistics from what now appears to be a slowdown in a key driver of global growth, Bloomberg reports. Inflation has meanwhile quickened its pace, reaching 3.3 per cent. But Asian economies are still proving surprisingly resilient in their export performance, the FT says. The question, however, is whether China in particular can orient towards stimulating internal consumption fast enough to make up for signs for slowing growth.

Fed reacts to faltering recovery

The Federal Reserve will reinvest $150bn of maturing MBS proceeds into Treasury debt, halting monetary tightening after downgrading its view of the economic outlook, the FT reports.  The move would ‘help support the economic recovery in a context of price stability,’ the FOMC said in its statement. FT Alphaville notes the plummeting of Treasury yields after the statement.

It’s a risky strategy for the Fed, says the WSJ, because the amount being reinvested looks like a baby step that’s put off much more intensive quantitative easing later on. Frankly, the FOMC has taken ‘the minimum possible non-contractionary action,’ says the Economist’s Free Exchange. FT Alphaville rounds up the rest of the reaction from analysts and commentators.

What’s in this Beveridge?

Something strange is happening in the US labour market, and although a lot of people have noticed, it seems nobody can explain why.

Since the first quarter of the year, the unemployment rate has remained much higher than would be predicted given the pace of job openings. Have a look at this chart, via Dave Altig of the Atlanta Fed: Read more

Post-payrolls pall is cast over US outlook

Cheer up — Friday’s dismal non-farm payrolls might yet look better on their second revision in a few months’ time, FT Alphaville reports: they’re often revised positively second time around. Not that it will help other off-colour indicators of the economic recovery, from auto sales to the ISM, writes James Hamilton at Econobrowser.

And even with the unemployment rate stuck at 9.5 per cent, employers looking for applicants are finding surprisingly few takers, the WSJ reports. Middle-skill workers laid off in the crisis are wary of unskilled jobs, while homeowners in debt often can’t move to find work. Jobs are also at the heart of the fiscal crisis facing the states, the FT says — with recession-hit tax receipts causing unfunded pension liabilities to catch up with state governments.

Markets look to Fed for QE answers

The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery, the FT says, even as markets watch for signs that it will take steps to boost growth. Asian and European stocks rebounded strongly on Monday on talk of Fed action, Reuters reports.

While incoming data give the Fed a green light to ease further, writes Tim Duy at Fed Watch, it’s more likely that it will acknowledge economic weakness rather than roll out new policies on its balance sheet. Analysts are divided on whether we will see the Fed act on Tuesday — at least for now, FT Alphaville says.

US GDP comes in below consensus at 2.4 per cent

US GDP grew at an annualised rate of 2.4 per cent in the second quarter, according to Commerce Department data released on Friday. From the release:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.4 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent. Read more

Economists gloomy ahead of GDP report

The Commerce Department’s advance report on GDP is expected to show markedly slower growth in the United States in the second quarter, Reuters reports. Weaker consumer spending and a widening trade deficit may have led GDP to increase by 2.5 per cent compared to 2.7 per cent in the first quarter, according to Reuters’ survey. However, slowdown is normal, if grim, for economies recovering from a financial crisis, says the NYT. Even so — plenty of hedge fund managers are glum on the prospects of a slowdown in all the advanced economies, Bloomberg reports – with signs of slowing growth apparent in Japan’s post-crisis recovery, too, the FT adds.