Economic Outlook Shows Economic Growth at a Standstill
The Wall Street Journal | July 26
The initial report on U.S. gross domestic product (GDP) growth for the second quarter is likely to dampen spirits: experts expect an annualized increase of just 1.5%. This figure not only falls short of the adjusted 1.9% growth from the first quarter but also indicates that the economy is drifting even further from the expected growth trend typically experienced three years after a recession ends.
Earlier today, I examined the history of a potentially valuable metric for tracking the business cycle: the ratio of nonfarm payrolls to the unemployment rate based on its 12-month percent changes. I previously credited economist Bob Dieli from NoSpinForecast.com for this discovery. Following my post, Dieli pointed out that I had misrepresented his focus, which was actually on the ratio of employed to unemployed individuals, using data directly from the household employment survey. Notably, these two metrics demonstrate similar trends over a rolling 12-month basis. Dieli’s clarification brings us closer to a more precise comparison of the data involved.
Today’s updates featuring initial jobless claims and durable goods orders provide some optimistic news, but with a crucial caveat: a key segment of durable goods, known as business investment, appears to be in decline. Does this dip in business investment—specifically the new orders for non-defense capital goods without aircraft—negate the positive indicators from durable goods overall and the significant reduction in new unemployment claims?
Bob Dieli from NoSpinForecast.com sent an interesting chart my way this week: the ratio of nonfarm payrolls to the unemployment rate. This monthly metric has a particularly fascinating correlation with the business cycle, notably peaking just before recessions occur.
Federal Reserve Considers New Stimulus If Economic Growth Remains Stagnant
The New York Times | July 24
An increasing number of Federal Reserve officials believe that the central bank should enhance its stimulus efforts unless there are soon positive signals from the economy, particularly regarding job creation. This issue is set to dominate discussions in the upcoming Fed policy meeting, with some members advocating for immediate action while others favor delaying a decision until the next meeting in September to assess more economic indicators.
Poverty remains a persistent issue. While it’s widely recognized that eradicating poverty is a formidable challenge, some progress had been made over the past few decades. However, recent trends suggest that the U.S. poverty rate may soon reach levels not seen since the 1960s, threatening to undo that modest advancement.
The Chicago Fed National Activity Index (CFNAI) for June indicated a modest increase, suggesting a decrease in recession risk. Although the three-month moving average rose to -0.20 in June from -0.38 in May, it remains the fourth consecutive month with negative readings. This trend indicates that growth in national economic activity is lagging behind historical averages, as reported by the Chicago Fed reports.
Spanish Yields Hit Record High Amid Regional Bailout Concerns
Bloomberg | July 23
Spanish bond prices fell as the 10-year yields soared to a euro-era high, following reports that six regions may seek financial assistance from the central government. This has amplified fears that Spain could require additional aid. “The potential for regional bailouts is affecting market dynamics and driving yields higher,” stated Craig Veysey, head of fixed income at Principal Investment Management Ltd. in London, a company managing $72 billion. “There is anxiety that Spain may be seeking a sovereign bailout sooner rather than later due to the need to support these regions. Current yield levels are becoming unmanageable for Spain.”
● Moods and Markets: A New Way to Invest in Good Times and in Bad (Minyanville Media)
By Peter Atwater
Summary via publisher, FT Press
Peter Atwater, a leading consultant and contributor to Minyanville, has assisted institutional investors, corporations, and policymakers in navigating the impact of shifting social moods on market opportunities. His book unveils how to utilize the Horizon Preference™ approach for selecting top-performing investments. By focusing on commonly overlooked yet vital aspects, this method allows investors to understand how our perspectives shift during good and bad times and make more informed investment choices. Atwater’s “Moods and Markets” provides compelling insights into factors such as market bubbles, merger challenges, and current trends like the rise of “farm to table” initiatives, changing rental preferences, and socio-political phenomena affecting consumer behavior.
The stock market and Treasury market’s inflation forecasts seem to be diverging, a phenomenon we haven’t witnessed for some time. Is this divergence significant? It may be. To fully grasp its implications, a brief historical context is necessary.
In summary, the economic landscape currently presents mixed signals. While some metrics indicate potential growth, pronounced challenges such as stagnation in GDP and rising poverty rates reveal a complex reality. Monitoring these trends is essential for understanding the broader implications for our economy and informing future policymaking.
