Haven’t yet hit the ‘get a job buy a car’ accelerator.
Watch for car sales to be the indicator of more rapid growth.
Meantime, muddling through with modest growth remains an ok equity environment as fear of becoming the next Greece is turning us into the next Japan.
And, of course, we continue to underestimate the deflationary effect of the Fed’s zero rate policy which should be a good thing in that it allows us to have lower taxes for a given size govt.
The staff still expected that the pace of economic activity through 2011 would be sufficient to reduce the existing margins of economic slack, although the anticipated decline in the unemployment rate was somewhat slower than in the previous projection.
Karim writes:
Staff still forecasting above trend growth, though not as firm as before. Activity indicators coming in as expected, with financial strains in May and June the cause for the revision.
Table below is average of FOMC members, not staff, but appears to have similar profile. Average expectations for 2011 growth at 3.85% from 3.95% prior..
A few participants cited some risk of deflation. Other participants, however, thought that inflation was unlikely to fall appreciably further given the stability of inflation expectations in recent years and very accommodative monetary policy. Over the medium term, participants saw both upside and downside risks to inflation.
Deflation talk still seems contained to a ‘few’ members.
Members noted that in addition to continuing to develop and test instruments to exit from the period of unusually accommodative monetary policy, the Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably.
This was only mention of QE2 – not very extensive.
Looks like the deficits got high enough in the US and Euro zone to reverse things, and I’d guess UK and Japan as well even though the charts don’t yet show the reversal because past deficits of this magnitude would have been more than sufficient and there recent data is showing signs of a turn.
This is all usually indicative of a multi year upturn, who magnitude depends on the extent private credit expansion kicks in.
In the past the ‘borrow to spend’ private credit expansions have been helped by a variety of ‘peculiar’ events, including the credit expansion due to sub prime and other housing frauds most recently, the dot com era’s borrowing to fund impossible business plans, the credit expansion driven by the S and L frauds in the 80’s, emerging market credit expansion before that, etc. etc.
This time might be different/less robust if credit expansion channels are kept honest and fiscal policy tightened.
With deficit spending running at about 7% of gdp modest growth should continue, with the ‘hand off’ coming when private sector credit expansion kicks in, which could be a while.
Karim writes:
Slowing, but still firmly in expansionary mode.
15 industries expand, 2 contract, 4 unch.
What respondents are saying…
| June | May | |
| Composite | 53.8 | 55.4 |
| Activity | 58.1 | 61.1 |
| Prices Paid | 53.8 | 60.6 |
| New Orders | 54.4 | 57.1 |
| Employment | 49.7 | 50.4 |
| Exports Orders | 48.0 | 53.5 |
| Imports | 48.0 | 56.5 |
Very well done by Mike Norman who’s on this email list.
This video makes it all the more obvious that Fox is on a propaganda mission, at best to support ratings, at worst to be subversive, rather than engaging with Mike on the facts.
You tube link:
Yes, I think we have a nice L shaped economy with modest GDP growth and modestly improving employment, so far mostly evidenced by the increased hours worked that you’ve been pointing out. Acceleration happens when/if some aspect of private sector credit growth takes off.
If euro solvency risks are indeed fading, it should be back to an ok market for stocks (which could have a large one time shift upwards to reflect the reduced euro risk), and low rates from the Fed until something changes.
Like Japan, the budget deficit may be large enough to keep it all from collapsing but not enough for the kind of growth that would trigger higher rates from the Fed.
Karim writes:
Data off recent peaks but still firmly in expansion territory:
Anecdotes mixed:
| June | May | |
| Index | 56.2 | 59.7 |
| Prices paid | 57.0 | 77.5 |
| Production | 61.4 | 66.6 |
| New Orders | 58.5 | 65.7 |
| Inventories | 45.8 | 45.6 |
| Employment | 57.8 | 59.8 |
| Exports orders | 56.0 | 62.0 |
| Imports | 56.5 | 56.5 |
They call Obama a ‘socialist’ who’s taking from the rich and giving to the poor, but the facts show that instead he’s presided over the largest transfer of wealth from poor to rich in the history of the world.
GDP has been growing by around 4% for the last two quarters, while the lowest income people suffered through job loss and declining wage growth.
That means someone else got the increase in real wealth:
World’s rich got richer amid ’09 recession: report
By Joseph A. Giannone
June 22 (Reuters) — The rich grew richer last year, even as the world endured the worst recession in decades.
A stock market rebound helped the world’s ranks of millionaires climb 17 percent to 10 million, while their collective wealth surged 19 percent to $39 trillion, nearly recouping losses from the financial crisis, according to the latest Merrill Lynch-Capgemini world wealth report.
Stock values rose by half, while hedge funds recovered most of their 2008 losses, in a year marked by government stimulus spending and central bank easing.
“We are already seeing distinct signs of recovery and, in some areas, a complete return to 2007 levels of wealth and growth,” Bank of America Corp wealth management chief Sallie Krawcheck said.
The fastest growth in wealth took place in India, China and Brazil, some of the hardest hit markets in 2008. Wealth in Latin America and the Asia-Pacific soared to record highs.
Asia’s millionaire ranks rose to 3 million, matching Europe for the first time, paced by a 4.5 percent economic expansion.
Asian millionaires’ combined wealth surged 31 percent to $9.7 trillion, surpassing Europe’s $9.5 trillion.
In North America, the ranks of the rich rose 17 percent and their wealth grew 18 percent to $10.7 trillion.
The United States was home to the most millionaires in 2009 — 2.87 million — followed by Japan with 1.65 million, Germany with 861,000, and China with 477,000.
Switzerland had the highest concentration of millionaires: nearly 35 for every 1,000 adults.
Yet as portfolios bounced back, investors remained wary after a collapse that erased a decade of stock gains, fueled a contraction in the global economy and sent unemployment soaring.
The report, based on surveys with more than 1,100 wealthy investors with 23 firms, found that the rich were well served by holding a broad range of investments, including commodities and real estate.
“The wealthy allocated, as opposed to concentrated, their investments,” Merrill Lynch head of U.S. wealth management Lyle LaMothe said in an interview.
Millionaires poured more of their money into fixed-income investments seeking predictable returns and cash flow. The challenge ahead for brokers is convincing clients to move off the sidelines and pursue riskier, more fruitful investments.
“There is still a hesitancy,” LaMothe said. “Liquidity is incredibly important and people need cash flow to preserve their lifestyle — but they want to replace that cash flow in a way that does not increase their risk profile.”
The report found that investor confidence in advisers and regulators remains shaken. The rich are actively managing their investments, seeking customized advice and demanding full disclosure about the securities they buy.
There were signs that investors were shaking off their concerns. Families that kept money closer to home during the crisis began shifting money to foreign markets, particularly the developing nations.
North American and European investors are expected to increase their exposure to Asian markets, which are projected to lead the world in economic expansion. Europe’s wealthy are seen increasing their U.S. and Canadian holdings.
More wealthy clients also are taking a harder look at large companies that pay healthy dividends, as an alternative to bonds and their razor-thin yields.
“Investors are open to areas they hadn’t thought about before as they try to preserve their ability to be philanthropic, to preserve their lifestyle,” LaMothe said. “To me, the report underscored clients are involved and they’re not inclined to stay in 1 percent savings accounts.”
Still feels like modest GDP growth, positive but not enough to make much of a dent in unemployment, until the ‘hand off’ to growth from credit expansion from some other sector, which could be a while.
Risks remain external.
China has been a strong first half weak second half story for a while, and a weak second half after an only ok first half this year can be a problem.
Fiscal tightening around the world can also keep a lid on things.
And I still have that nagging feeling that a 0 rate policy requires higher budget deficits to sustain full employment than a policy of higher rates. That should be a good thing- means taxes can be that much lower- but with a govt that doesn’t understand its own monetary system and keeps fiscal too tight it’s a bad thing.
All seems to point to more of an L shaped, Japan like recovery than a V.
Karim writes:
Constructive data:
* Initial claims down 19k to 457k; Labor dept cited processing issues around Memorial Day holiday for elevated readings past couple of weeks
MKT NEWS:”A Labor analyst said the surge in the previous two weeks was apparently due to technical factors relating to the way new claims were distributed over the holiday and post-holiday weeks and to a pattern that departed from what the seasonal factors were prepared for.”
* Number receiving extended benefits at lowest since last December, suggesting some easing in ability to find a job
Durable goods orders ex-aircraft and defense up 2.1% last month and up 29% past 3mths at an annualized rate; Capex was the sector was the Fed was most upbeat on in their statement yesterday
Shipments ex-aircraft and defense up 1.6% m/m and 16.7% on a 3mth annualized rate
