Daily: Data not really pointing to recession outside of Europe
Most of the links are about Europe as usual but I think the breadth of news today is good. I would like to highlight the conflicting economy stories out there. While Europe remains mired in recession, the rest of the world is still growing. In the US, the data have been weak of late but not out and out recessionary as the ECRI claims. I would be surprised if they were proved right on their recession call, one they first made a year ago. Growth estimates in the US are being cut but no one is really saying recession outside of ECRI, Hussman and Michael Shedlock.
Today’s jobless claims confirm that there has been no uptick in layoffs meaning that the second derivative (change in the change) of employment is not moving toward recession. What I would expect to see at this point in the cycle to confirm imminent recession is a deterioration in consumer income and spending growth metrics because that would drive production. What we are seeing now seems to be an inventory de-stocking that will pass, if it doesn’t feed through into lower income or continue to feed through into lower job additions. Also, housing data in the US is mildly supportive of some capital spending in that sector. Remember that GDP growth is a first derivative statistic ie. a delta. What you want to gauge for recession is the delta in the delta for the areas that the recession data committee look at: Personal Income, retail sales, employment, production, GDP, etc. I will be starting up with the data feeds to give you a more granular look when I have the time to update my spreadsheets.
Elsewhere, the slowdown continues and the usual policy response is to cut rates. Cutting rates has a two-fold impact, it lowers the hurdle for borrowers, increasing credit demand. It also lowers interest income. Conventional wisdom is that the first effect outweighs the second to make rate cuts stimulative. The reality is that when credit demand by creditworthy customers is constrained, the second effect overwhelms the first and the rate cuts add a negative impulse to the economic cycle. I don;t think we are there in South Korea where rates were just cut for the first time in three years but we are there in both Brazil and China.
Also, note the tech articles today. The market is worried about the tech sector and high fliers are being punished. But I still like valuations for large cap tech at this point in the cycle and think that companies like Microsoft or Google or Cisco deserve a look.
That’s it. Here are the links.
The Market Has Spoken – And It Is Rigged | The Baseline Scenario
More Capital’s Answer to Too Much Bank Regulation – The Source – WSJ
The Center of the Universe » Banks Face $6 Billion of Libor Litigation, Morgan Stanley estimates
Yahoo reports theft of 400,000 accounts | Reuters
Groupon Shares Hit Fresh All-Time Low – MarketBeat – WSJ
Push in U.S. for fewer sales bans for patent infringement | Reuters
Google’s ‘messy’ results may confuse – The Tell – MarketWatch
BBC News – Republic of Ireland growth in 2011 twice previous estimate
German riposte (technical) – Telegraph Blogs
Slovenian Banks Under Strain as Bad Loans Advance – Bloomberg
Greek unemployment hits new record of 22.5 percent in April | Reuters
Sober Look: Eurozone’s electorate becoming increasingly polarized
Factory output drags on euro zone’s economy | Reuters
ECB zero rate slashes banks’ overnight deposits | Reuters
Italy stats office threatens to stop issuing data | Reuters
Spanish coal miners bring message of defiance to Madrid | World news | guardian.co.uk
Juan Ramón Rallo: A Better Way to Save Spain’s Banks – WSJ.com
Should Taxpayers Bail Out Spain’s Bank Bondholders? – Forbes
Events Overtake EU Finance Ministers – Real Time Brussels – WSJ
Don’t Totally Dismiss Drop in Jobless Claims – Real Time Economics – WSJ
BBC News – South Korea in first interest rate cut for three years
Banks Slash Growth Forecasts on Weak Data – Real Time Economics – WSJ
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