Global Radar Screen – 7/8/11

Posted July 8, 2011 by CLeahey

[private][private]Overview—One Dip, or Two?

The US bond market reversed about half of its recent losses as another weak jobs report trumped the better news on the manufacturing sector. While DE does not think the US economy is going into a double dip, growth is downshifting to a very sluggish pace. After some hiring earlier this year, firms are essentially taking a time-out from hiring given all the uncertainties that dot the economic landscape. They continue to find ways to economize on hiring and replace relatively expensive labor with cheaper capital. This long-term substitution of capital for labor accelerated in the mid-1990s and was undeterred by the great recession. In a slow growth environment, business is in no hurry to hire workers. Fortunately, consumer demand has slowed this year but the recent data suggest no further erosion, as cautious spending gains continue. The recent $20 drop in oil prices from the highs could bolster GDP growth as much as 0.25 to 0.50 percentage point if oil prices stay around $100 per barrel. The recovery in Japanese output should free up the supply chain around the globe. Already there are signs of stability in the Chicago and national mfg. surveys which could give some lift to mfg activity by Labor Day. Still DE’s view of a rebound is rather muted 2011H2 growth of under 3% after a very disappointing sub 2% gain in H1. We can hope that this disappointing jobs report will increase the pressure on Congress and the administration to pull together a meaningful budget deal to not only help pass the debt ceiling but provide some needed policy clarity which could help private decision making.
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