Still feels like modest GDP growth, positive but not enough to make much of a dent in unemployment, until the ‘hand off’ to growth from credit expansion from some other sector, which could be a while.

Risks remain external.

China has been a strong first half weak second half story for a while, and a weak second half after an only ok first half this year can be a problem.

Fiscal tightening around the world can also keep a lid on things.

And I still have that nagging feeling that a 0 rate policy requires higher budget deficits to sustain full employment than a policy of higher rates. That should be a good thing- means taxes can be that much lower- but with a govt that doesn’t understand its own monetary system and keeps fiscal too tight it’s a bad thing.

All seems to point to more of an L shaped, Japan like recovery than a V.

Karim writes:

Constructive data:

* Initial claims down 19k to 457k; Labor dept cited processing issues around Memorial Day holiday for elevated readings past couple of weeks

MKT NEWS:”A Labor analyst said the surge in the previous two weeks was apparently due to technical factors relating to the way new claims were distributed over the holiday and post-holiday weeks and to a pattern that departed from what the seasonal factors were prepared for.”

* Number receiving extended benefits at lowest since last December, suggesting some easing in ability to find a job

Durable goods orders ex-aircraft and defense up 2.1% last month and up 29% past 3mths at an annualized rate; Capex was the sector was the Fed was most upbeat on in their statement yesterday

Shipments ex-aircraft and defense up 1.6% m/m and 16.7% on a 3mth annualized rate

9 Responses

  1. Constructive data? Are you kidding??

    Have you seen the housing data??

    Plus, weakness surfacing in retail sales, manufacturing, inventories, weekly claims still in the 450k level for 30 weeks plus!! And…states about to crater–total gov’t shutdowns on the horizon and getting closer by the day.

    The only “constructive” thing has been the rhetoric out of the Administration, which seems to be shifting focus to growth as opposed to deficit reduction, however, great opposition in Congress and abroad. Check out my post: A Bullish Shift in Policy?

    1. Agreed, Mike. Odds of a double-dip are increasing over an L, it seems. A V is just wishful thinking with demand in the tank and set to crater unless policy is shifted. Do people really think that consumers are going to start borrowing heavily again — where else are they going to get the money?, Or that business is going to invest if demand doesn’t improve? Or that the housing market is going to suddenly recover after a huge inventory is sold off? Oh right, we are going to export out way out of this. Good luck with that.

  2. agree with what you are saying, it’s terrible!

    but I think that probably means maybe 1-3% gdp growth.

    a good economy would be recovering at 6-10% from this kind of recession

    The deficit spending is still adding maybe 6% to GDP which, while not enough to restore employment and output, isn’t nothing either.

    I’ve been ‘on the sidelines’ and preaching L shaped for a while now, and not much seems to have changed except it seems to be turning out that way?

    and right now equities seem to be in a violent trading range and not going much of anywhere?

  3. Equities are going down unless this new “pro-growth” rhetoric leads to action. BTW, did you see that Robert Orszag is quitting? Either he knocked up some other chick or, maybe, Obama wants to get rid of some of these Deficit Terrorists.

  4. BTW, did you see that Robert Orszag is quitting? Either he knocked up some other chick or, maybe, Obama wants to get rid of some of these Deficit Terrorists.

    I wonder where Biden stands on the issue (deficit terrorism, I mean, not unplanned pregnancy). My impression is that Biden has never been in the Robert Rubin hairshirt economics crowd, unlike the president and Orzsag (who used to work for Rubin at the Hamilton Project). Its been reported that Bidene’s been pushing the President since last year to wind down the war in Afghanistan, which of course conflicted with the escalation advice McChrystal gave him– thus the 3 month delay to only split the difference (We’ll 60% escalate! Then withdraw slowly!). It will be interesting to find out what advice Biden is giving Obama on the economy.

    The VP’s economic adviser (if his hiring is any clue to Biden’s thinking), Jared Bernstein, isn’t much of a deficit hawk, nor is CEA Chair Christina Romer. Even Summers seems to get, per his recent speech, that with interest rates already near zero, unemployment is far too high.

    At some point, someone is going to point out to the president that every time he empowers the deficit hawks, he weakens the economy and his chances at re-election. And I’d wager that someone is the Vice President and maybe three months later, the President will make a decision. :o)

    1. Obama is a “centrist,” which is what he means by “bipartisan.” The operational definition is one who splits the difference. Obama seems to looks at the “extremes” — the extreme left positions are marginalized, so he doesn’t consider them — then comes down in the middle of the road.

      I get the sense that Obama doesn’t know where he is going. He had clear objectives laid out for him in the primary and presidential campaign — beat HRC and then McCain/Palin. But I don’t think he has a governing vision or plan how to get there after he was elected. This just creates an impression of weakness and confusion rather than strength and decisiveness.

      The president talks tightening at home and and then tells the G20 not to pull back on stimulus yet. WTF.

  5. Summers appears in my book which is on line so maybe his people picked up on it and he read it?

    1. That could be. I thought the most interesting part of that anecdote was who set up the Summers meeting, Tom Daschle.

      Not sure if Daschle was supportive of your ideas or simply owed you a favor, but its worth noting that Daschle has long been a mentor to the president. His longtime Senate chief of staff Pete Rouse is now a White House Senior Adviser and, of course, Daschle himself was Obama’s original pick for HHS.

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