Federal Reservations

WASHINGTON (MarketWatch) -- U.S. growth slowed over the summer, but some sectors such as agriculture and manufacturing held up better than others, according to the Federal Reserve's latest report on the economy.

Originally from MarketWatch

SAN FRANCISCO (MarketWatch) -- Crude oil futures relinquished some gains Wednesday after the Federal Reserve's regional survey of the economy showed growth slowed over the summer. Oil for October delivery recently traded up 30 cents to $74.39 a barrel. Ahead of the Beige Book's 2 p.m. release, it had traded over $75 a barrel, helped by a falling dollar and reduced worries about the European economy. Overlapping with the Fed report, President Barack Obama delivered a speech on the economy.

Originally from MarketWatch

WASHINGTON (MarketWatch) -- There has been too much alarmist discussion of recent economic indicators and the outlook is not as pessimistic as some have suggested, said Dennis Lockhart, the president of the Atlanta Federal Reserve Bank on Friday. Lockhart said he thinks the U.S. economy is experiencing a "temporary downshift" and the economy will look and feel better at the end of the year than it does today. In a speech in East Tennessee State University, Lockhart said the Fed's decision last month to buy Treasurys to maintain a stable balance sheet had been "over-interpreted." He said it did not herald the start of new quantitative easing. Lockhart said the August nonfarm payroll report did not change the picture in the labor market of continued high unemployment. Consumers are holding back from spending because of labor market conditions, he said.

Originally from MarketWatch

SAN FRANCISCO (MarketWatch) -- Goldman Sachs changed its list of top stocks on Thursday as concerns shift from Europe's sovereign debt crisis to the possibility of a U.S. economic slowdown. Goldman economists recently cut their growth forecasts and they now expect more quantitative easing from the Federal Reserve, the firm noted. Lower interest rates should help private-equity firms like Blackstone Group and real estate investment trusts including Simon Property Group , Goldman said in a note to investors. The firm put Blackstone and Simon Property shares on its Conviction Buy List, along with Brookdale Senior Living , which runs homes for old people. Derivatives exchange operator CME Group and commercial real estate brokerage firm CB Richard Ellis were taken off Goldman's list.

Originally from MarketWatch

World markets fell Tuesday amid signs China's economy is losing steam and ahead of a Federal Reserve meeting that will be watched closely for rate-setters' views on the slowdown in the U.S. recovery. In Europe, the FTSE 100 index of leading British was down...

Asia - Shanghai - China - Stock market - Federal Reserve System

Originally from SFGate: Business & Technology

US economic activity has 'continued to increase' over the past seven weeks but there are signs of a slowdown, according to the Federal Reserve's latest Beige Book survey.

Originally from FT.com - US and Canada, Economy & Fed

WASHINGTON (MarketWatch) -- Federal Reserve officials concluded at their June policy meeting that the pace of the recovery was likely to be slower than they had earlier hoped, but they saw no immediate need for more easing of monetary policy, according to a summary of their June 22-23 meeting released Wednesday. Officials agreed that it would be a good idea to study what steps "might become appropriate" if the economy took a sharp downturn. Fed officials did not appear overly alarmed about a slowdown. None of the 17 top Fed policymakers are forecasting a double-dip. Only a few cited some risk of deflation. The Fed's formal forecasts made slight downward revisions to growth and inflation in 2011 and 2012 and saw a slightly higher unemployment rate in 2011.

Originally from MarketWatch

Dallas Federal Reserve President Richard Fisher said the timing of monetary tightening will depend on conditions in the U.S. economy, which will slow in the latter half of this year, Japan's Nikkei newspaper reported on Tuesday.

Originally from All News, Video and Posts related to TOPIC: Federal Reserve

No one has a crystal ball, but it appears the U.S. economy will slow in the 2nd half of 2010.

For the unemployed and marginally employed, and for many other Americans suffering with too much debt or stagnant real incomes, there is little difference between slower growth and a double-dip recession. What matters to them is jobs and income growth.

In both cases (slowdown or double-dip), the unemployment rate will probably increase and wages will be under pressure. It is just a matter of degrees.

The arguments for a slowdown and double-dip recession are basically the same: less stimulus spending, state and local government cutbacks, more household saving impacting consumption, another downturn in housing, and a slowdown and financial issues in Europe and a slowdown in China. It is only a question of magnitude of the impact.

My general view has been that the recovery would be sluggish and choppy and I think this slowdown is part of the expected "choppiness". I still think the U.S. will avoid a technical "double-dip" recession.

Usually the deeper the recession, the more robust the recovery. That didn't happen this time (no "V-shaped" recovery), and it is probably worth reviewing why this period is different than an ordinary recession-recovery cycle.

First, this recession was preceded by the bursting of the credit bubble (especially housing) leading to a financial crisis. And there is research showing recoveries following financial crisis are typically more sluggish than following other recessions. See Carmen Reinhart and Kenneth Rogoff: "The Aftermath of Financial Crises"

An examination of the aftermath of severe financial crises shows deep and lasting effects on asset prices, output and employment. ... Even recessions sparked by financial crises do eventually end, albeit almost invariably accompanied by massive increases in government debt.

Second, most recessions have followed interest rate increases from the Fed to fight inflation, and after the recession starts, the Fed lowers interest rates. There is research suggesting the Fed would have to push the Fed funds rate negative to achieve the same monetary stimulus as following previous recessions. See San Francisco Fed Letter by Glenn Rudebusch The Fed's Exit Strategy for Monetary Policy.

Click on graph for larger image in new window.

The graph from Rudebusch's shows a modified Taylor rule. According to Rudebusch's estimate, the Fed Funds rate should be around minus 5% right now if we ignore unconventional policy (obviously there is a lower bound) and probably close to minus 3% if we include unconventional policy. Obviously the Fed can't lower rates using conventional policy, although it is possible for more unconventional policy.

Third, usually the engines of recovery are investment in housing (not existing home sales) and consumer spending. Both are still under severe pressure with the large overhang of housing inventory, and the need for households to repair their balance sheet (the saving rate will probably rise - slowing consumption growth).

On this third point, I put together a table of housing supply metrics last weekend to help track the housing market. It is hard to have a robust economic recovery without a recovery in residential investment - and there will be no strong recovery in residential investment until the excess housing supply is reduced substantially.

During previous recoveries, housing played a critical role in job creation and consumer spending. But not this time. Residential investment is mostly moving sideways.

This graph shows residential investment (RI) and investment in single family structures as a percent of GDP. RI is mostly investment in single family structures, home improvement, multi-family structures and commissions on sale of existing structures.

It isn't the size of the sector (currently only about 2.5% of GDP), but the contribution during the recovery that matters - and housing is usually the largest contributor to economic growth and employment early in a recovery.

Two somewhat positive points: 1) builders will deliver a record low number of housing units in 2010, and that will help reduce the excess supply (see: Housing Stock and Flow), and 2) usually a recession (or double-dip) is preceded by a sharp decline in Residential Investment (housing is the best leading indicator for the business cycle), and it hard for RI to fall much further!

So I'm sticking with a slowdown in growth.

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And a market update from Doug Short of dshort.com (financial planner).

Click on graph for interactive version in new window.

The graph has tabs to look at the different bear markets - "now" shows the current market - and there is also a tab for the "four bears".

Originally from Calculated Risk

There are several analysts forecasting GDP growth to pick up in the 2nd half of this year, with annual GDP growth of over 4% for 2010 (the advance Q1 GDP estimate was 3.2%, so over 4% for 2010 would require a nice pick up in the 2nd half). This is not a "v-shaped" recovery - that didn't happen - but these forecasts are still above trend growth.

Unfortunately I think we will see a slowdown in the 2nd half of the year, but still positive growth. Last year I argued for a 2nd half recovery ... and that was more fun!

Here are a few reasons I think the U.S. economy will slow:
1) The stimulus spending peaks in Q2, and then declines in the 2nd half of 2010. This will be a drag on GDP growth in the 2nd half of this year.

2) The inventory correction that added 3.8% to GDP in Q4, and 1.6% to GDP in Q1, has mostly run its course.

3) The growth in Personal Consumption Expenditures (PCE) in Q1 came mostly from less saving and transfer payments, as opposed to income growth. That is not sustainable, and future growth in PCE requires jobs and income growth. Although I expect employment to increase, I think the job market will recover slowly (excluding temporary Census hiring) because the key engine for job growth in a recovery is residential investment (RI) - and RI has stalled (until the excess housing inventory is reduced).

4) There is a slowdown in China and Europe has some problems (if no one noticed) ... and that will probably impact export growth, and also negatively impact one of the strongest U.S. sectors - manufacturing (when was the last time manufacturing was one of the strongest sectors?)

Of course monetary policy is still supportive and it is unlikely the Fed will sell assets or raise the Fed Funds rate this year. Maybe some commodities like oil will be cheaper and give a boost to the U.S. economy ... maybe the saving rate will fall further and consumption will continue to grow faster than income ... maybe residential investment will pick up sooner than I expect ... maybe. But this suggests a 2nd half slowdown to me.

Originally from Calculated Risk