A few more modest ‘green shoots’ including US personal income up .5, a few more jobs, houses and cars looking reasonable firm, etc. and markets starting to ‘undiscount’ a US recession.

Govt deficits remain plenty high to support income/sales/employment at current (depressed) levels and promote modest growth. Just as in the prior two double dip panics of the last several years, markets and the mainstream tend to give little if any weight to the notion that large deficits support aggregate demand. (Interesting how ideology seems to be adversely influencing their forecasting.)

So right now I see no fundamental reason for a meaningful drop in aggregate demand, apart from a politically driven external shock of some sort from Europe or maybe Iran, where there have been a few too many very recent noises regarding an Israeli attack for comfort.

Swiss Manufacturing Slump Unexpectedly Eases on Output Gain

By Simone Meier and Klaus Wille

August 2 (Bloomberg) — Swiss manufacturing contracted at a slower pace in July than in the previous month as companies stepped up production, suggesting that the economy is weathering Europe’s deepening slump.


The procure.ch Purchasing Managers’ Index rose to 48.6 from 48.1 in June, when adjusted for seasonal swings, Credit Suisse Group AG said in an e-mailed statement today. That’s the highest since March. A reading below 50 indicates contraction.

Marginal rise in construction output, but new orders continue to decline during July

August 2 (Markit) — At 50.9 in July, up from 48.2, the Markit/CIPS Construction PMI rebounded slightly from June’s two-and-a-half year low. However, the latest reading was well below the long-run series average (54.2). Growth was largely confined to the commercial sub-sector in July, as house building and civil engineering activity continued to decline. July data indicated a further reduction in new work received by construction companies. Although the rate of decline eased over the month, it was still the second-fastest since January 2010. Survey respondents widely cited a lack of new opportunities to tender and a general weakness in underlying market demand.

Sweden Krona Jumps as Rate Cut Calls Fade on Accelerating Growth

By Stephen Treloar and Johan Carlstrom

August 1 (Bloomberg) — Sweden’s krona surged, posting the biggest gains of all major currencies, after a report showed manufacturing unexpectedly expanded, damping speculation the Riksbank will cut interest rates at its meeting next month.

The krona rose as much as 0.8 percent to 8.2979 per euro, the highest since Sept. 11, 2000, and was up 0.5 percent at 8.3217 as of 1:15 p.m. in Stockholm. It surged almost 0.9 percent against the dollar to 6.7411, a three-month high. It gained against all 16 major currencies tracked by Bloomberg.

An index based on responses from purchasing managers rose to a seasonally adjusted 50.6 in July from 48.4 the previous month, Stockholm-based Swedbank AB said today. A reading above 50 signals an expansion. It was estimated to drop to 47.7, according to the median estimate in a Bloomberg survey.

“Following the surprisingly strong GDP number Monday this gives further ammunition for unchanged Riksbank rates at the September meeting and lends additional support to krona appreciation,” said Claes Maahlen, head of trading strategy at Svenska Handelsbanken AB in Stockholm, in a note today.

Sweden has been able to avoid a recession this year as companies such as retailer Hennes & Mauritz AB and Sandvik AB have benefitted from demand outside Europe and as the central bank cut interest rates. The economy expanded 1.4 percent in the second quarter as increased exports of services offset a decline in the export of goods. Consumer spending also rose.

The yield on Sweden’s two-year notes increased three basis points to 0.9 percent.

6 Responses

  1. I am interested in the extent to which US election spending will support aggregate demand heading into the last quarter. (It is interesting to speculate that Republican election spending might sufficiently contribute to GDP growth that Obama and company get re-elected — but maybe I just have over-guesstimated the impact of this spending?)

    1. @Marquis Wheat,

      It’s completely negligible. Spending on the presidential campaign is on the order of $2B (out of a $15T economy), and some of that displaces spending on advertising which would have done more to stimulate consumption. The Olympics is probably more of a boost to the economy, but even that is just a drop in the bucket.

      Interestingly, the presidential campaign is having a big impact on the demand for chicken sandwiches and waffle fries.

  2. At the same time that govt deficits add to the net wealth of the non-government sector, changes in house prices could eat away net wealth of the private sector.

    MMT seems to lack proper wealth analysis of the economy.

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