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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