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Economic Uncertainties No Longer!

Economics / Double Dip Recession Aug 10, 2010 - 12:49 PM GMT

By: Sy_Harding

Economics Fed Chairman Bernanke can move on from his warning of a couple of months ago that there are “unusual uncertainties” in the economy. There may still be uncertainties in the stock market, but no longer in the economy! It is almost surely headed into a recessionary period again.

We’ve had the collapse of the housing industry since April when the home-buyer rebates expired, foreclosures running at an even faster pace this year than last year, and most recently pending home sales declining 2.6% in July, with the usually positive summer selling season drawing to a close. The homebuilder sentiment index, which had been improving last year and into May of this year, plunged in July to its lowest level of confidence since April of 2009.

With consumer spending accounting for 70% of the economy, we’ve seen a reversal that began in June, retailers reporting disappointing same store sales for July, and consumer confidence plunging in June, and most recently in July to its lowest level in nine months.

The ISM Mfg Index declined in June for the fourth straight month, while factory orders fell 1.2% in June. On Tuesday, the National Federation of Independent Business reported its index measuring the confidence of small business owners fell in July. The NFIB noted that nearly 75% of respondents said now is a bad time to expand their business, that small businesses see “sub-par growth in the second half of the year.” 

These reports of important homebuilder, consumer, and business confidence plunging are not harbingers of hope for the second half.

And in spite of forecasts from early in the year that economic growth would slow this year, but not until the second half, there was the recent 2nd quarter GDP report that showed economic growth slowed to only 2.4% in the 2nd quarter, much slower than forecasts of 4% a few months ago, and 3% just weeks before the report was released.

Hopes have been moving forward to each next report, most recently to last Friday’s employment report. But it was also a dismal failure, showing an additional 131,000 jobs were lost in July, and only 71,000 new jobs were created in the private sector versus forecasts of 100,000, while the new private sector jobs previously reported for June were revised down sharply from 81,000 to only 31,000.

There was hope that China’s strong economy would provide a boost to U.S. exports and help soften the second half slowdown.

That hope was shot down Monday night with the report that China’s trade surplus spiked up in July to its highest level in a year and a half, mostly as a result of a sharp decline in import growth. The country’s trade surplus jumped to $28.7 billion in July from $20.2 in June, much higher than the consensus forecast of a decline to $19.6 billion. And imports rose only 22.7%, slowed significantly from the increase of 34.1% in June, and well below the forecast that they would increase 30.2%. The much slower spending on imports is another sign that China’s economy is slowing faster than expected, and is not good news for other countries, including the U.S., hoping to export more goods to China.

The ongoing downpour of bad news for the U.S. economy just won’t take a rest. On Tuesday morning it was reported that business productivity in the U.S. dropped at an annualized rate of minus 0.9% in the 2nd quarter, the first decline since the fourth quarter of 2008, when that recession was just getting underway.

It seems clear that the uncertainties that began developing in the 2nd quarter have worsened and become certainty; that the economy is slowing sooner and faster than forecasts, with few hooks remaining to hang hopes on that it can avoid dipping into a recessionary period for a quarter or two. 

Sy Harding is president of Asset Management Research Corp, publishers of the financial website, and the free daily market blog,

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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