Thursday, June 30, 2011

USA & Global Economy: Expansion Slowing (Review, GDP Charts) *June 2011 Month End Economic Review*


USA and Global Economy: Monthly Economic Review

Overall, both the USA and Global Economy continue expanding, but at a slowing rate.

Global Uncertainties
1) First concern since March has been high oil prices resulting from the Libyan revolution and other Arab uprisings (Arab Spring) creating actual and potential supply disruptions. U.S. crude and Brent crude closed the month down at $94.87 and $111.56, from the May 31 close of $103.16 and $116.27, respectively. Oil prices continue below the highs in May. Persistent higher gas prices have become a drag on USA and Global economic growth. The current downtrend in oil prices is welcome relief and hopefully will begin to mitigate the negative economic effects of the past months.
2) Second concern recently has been the EU sovereign debt crisis, which waxes and wanes in its effect on equity and credit markets. This problem is chronic, systemic, and therefore a long-term issue. Currently the sovereign debt and fiscal effectiveness of Greece is in the forefront, but Italy is now becoming news and Portugal, Ireland, Spain, and even Belgium are in the near background. In addition, the peripheral Euro Zone countries, Eastern Europe, are ongoing sovereign debt problems.
3) Third concern is the catastrophic earthquake and tsunami that hit Japan, the world's third largest economy. The resulting nuclear radiation crisis and the negative economic impact of this crisis and possible global implications have begun to show in economic output both for Japan and on the worldwide economy. Japan is officially in a recession as of the quarter ended 3-31-11 with a negative GDP for 2 consecutive quarters.
4) Fourth concern is the USA debt of $14+ trillion and the debt ceiling being reached on August 2, 2011. More discussion is below in USA Uncertainties.
5) Fifth concern, a medium-term and long-term uncertainty, is the growing demand by emerging national economies (e.g. BRIC: Brazil, Russia, India, China) for commodities, including oil and food, which then increases prices for governments, businesses, and consumers worldwide.

USA Uncertainties
1) The deteriorating USA economic data. This appears to be mostly the result of persistent higher oil prices, which are discussed above. USA Q1 2011 GDP (final estimate by the Bureau of Economic Analysis) of +1.9% is inadequate and borderline dismal. However, the USA GDP has grown for 7 consecutive quarters through Q1 2011, but the growth is not adequate.A double-dip recession is possible, but still does not appear probable. Continued inadequate (slow to very slow) economic growth is probable.
2) The USA funded debt of $14+ trillion and the heated political and social debate over both the debt and debt ceiling. Now Fitch has stated that the USA would be placed on "watch negative" if Congress did not raise the debt ceiling by August 2. The S&P cut the USA to a long-term negative outlook for sovereign credit and Moody's has warned the USA to resolve the debt ceiling political deadlock or a short-term negative outlook rating is imminent. In addition, if spending is actually cut by any material amount, this will negatively impact the economy (and already has), rightly or wrongly, regardless of political beliefs. August 2 is the deadline and a bi-partisan resolution of this problem does not currently appear probable.
3) The USA unemployment and underemployment rates that remain high. USA weekly unemployment insurance claims have been at 400,000+ for 12 consecutive weeks. The USA economy is not generating an adequate number of new jobs.
4) The Federal Reserve policies and the end of quantitative easing (QE2) as of June 30, 2011. The Fed is ceasing most monetary intervention and support for the second time since the Financial Crisis in the autumn of 2008. The extent of this impact, much debated, will be seen later this summer. Hopefully, the negative impact will be minimal and then can be removed as a concern. Chairman Bernanke stated at the April Federal Reserve press conference that he thought it was unlikely that the end of quantitative easing would have any significant effect on markets or the economy.
5) USA residential real estate continues in a market depression and commercial real estate is not much better.
6) USA consumer confidence remains at historically low levels
7) USA financial system continues with problems and weaknesses, including a foreclosure fiasco and crisis. The worst does appear to be over.
8) The USA cannot stop deficit spending therefore the USA has an ever increasing national debt.
9) USA local and state governments are in fiscal crisis and there are less government workers, which negatively affects the economy.
There does appear to be a Day of Reckoning for the USA on the horizon, although no one really knows when. The aftermath of the Credit Bubble and Great Recession will linger for years.

USA and World Economic Data
Below are March blog post headlines from Boom Doom Economy,  Financial ControlsBaidu Planet, Matrix Markets, and Neo Solomon summarizing select economic data and news, in approximately reverse chronological order. This is not a comprehensive list of key economic data. It is selected economic data that gives a general idea of the overall economic conditions, with the exceptions and additional concerns and uncertainties noted in the preceding paragraph. Much is lagging economic data from May and even April. However, trends can be ascertained and it does appear that economic expansion did continue in both the USA and on a Global scale, but at a slower pace.

USA and World GDPs
Further below is the historical and projected USA GDP per the U.S. Bureau of Economic Analysis. Also further below are the projected GDPs for the World, USA, the Euro Area, China and Japan per the latest IMF World Economic Outlook. The economic data for June and July will now begin and should indicate continuing, but slow to very slow, economic expansion. Q4 2010 was better than initially projected for the USA and Global economy, but not as robust as hoped for. In Q1 2011 there was a pronounced slowing of USA and Global economic expansion. The pace of the economic expansion further slowed in Q2 2011. Q3 2011  is the concern now and is clouded by the high oil prices, the EU sovereign debt crisis, the USA debt ceiling, and ongoing Middle East turmoil.

USA Positive Economic Data and News
● USA Weekly Unemployment Claims Dip to 428,000 (Video, Charts) *4-week average 426,750*
● S&P 500 Drops 7 of Past 8 Weeks (Chart) *European debt crisis weighs on markets* [Equity markets have rallied significantly in past week]
● Bernanke Conducts June 2011 Federal Reserve Press Conference (Video, Review) "We'll see greater growth going forward"
● USA Industrial Production Ekes Out Post-Great Recession High (Chart) *Highest since August 2008*
● Fed Beige Book: "USA Economic Activity Generally Continued to Expand" (Review) "Labor markets continued to improve"
● USA Services Sector: Growth Continues in May (Chart) *Non-Manufacturing Index expands for 18th month*

USA Neutral and/or Negative Economic Data and News
● Bank Failure Friday: FDIC Seizes 1 Bank (Charts) *2011 Totals: Failures 48, Cost $3.83B*
● USA GDP Growth Final Estimate +1.9% in Q1 2011 (GDP Charts) *Qtly GDP $15.02 trillion annualized is all-time high*
● USA Weekly Leading Index at 28-Week Low (Charts) *Annualized growth rate at 25-week low*
● Federal Reserve Lowers USA GDP Projection for 2011 (Charts) *Unemployment rate estimate raised*
● U.S. Could Face European-Style Debt Crisis *USA borrows 40 cents of every dollar it spends*
● Federal Reserve: "Recovery Continuing at Moderate Pace, Though Somewhat More Slowly" (GDP Chart) *Labor market weaker*
● USA Monthly Leading Index at Post-Recession High! (Chart) "Expanding economic activity in coming months"
● USA Consumer Sentiment Drops in June (Charts) "Renewed concerns about outlook for the economy"
● USA Monthly Retail & Food Sales Dip in May (Charts) *First decrease since June 2010*
● Americans' Lost Trillions in Household Wealth (Chart) *Down $7.7 trillion since Spring 2007*
● USA Consumer Credit Increases (Charts) *Revolving credit lowest since August 2004*
● Moody's Warns USA on Debt Ceiling
● USA Unemployment Rate Rises to 9.1% (Charts) *Jobs growth a meager +54K in May*
● USA Manufacturing PMI Plunges to 20-Month Low (Chart) *USA economy expands for 24th month*
● USA Consumer Confidence Plunges in May (Charts) "A more pessimistic outlook"
● USA Problem Bank List Continues Extremely High (Chart) *FDIC Quarterly Banking Profile*
● USA Economy Damaged More Than Expected by Japan Earthquake

Global Positive Economic Data and News
● Higher Capital Requirements Approved for World's Largest Banks (Review) *Safety buffer for Too Big To Fail*
●Japan Industrial Production Jumps Up in May *+5.7% highest since March 1953*
● Global Growth Projected to Remain Strong (GDP Charts) *The World Bank: Global Economic Prospects*
● Global Economic Expansion Shows Slight Improvement in May (Chart) "Recovery entering a softer growth phase"
● Global Services Growth Rises Slightly in May (Chart) "Rate of expansion was still only modest"

Global Neutral and/or Negative Economic Data and News
● Mild Slowdown of the Global Expansion and Increasing Risks (Video, GDP Charts) *IMF World Economic Outlook Update*
● China Manufacturing Growth Nearly Stalls in June (Chart) *At 11-month low: "demand is cooling"
● Why Austerity Doesn't Matter: Greece Is Still Going to Default (Slideshow) *Some European countries can't pay their debt*
● Fitch Sees Risk of Greece & USA Debt Defaults *U.S. Treasury securities could be downgraded*
● Italy's Credit Rating May Be Downgraded by Moody's *Crisis could affect Spain, Portugal, Belgium*
● China Monthly Leading Economic Index at New High! (Chart) "Slower trend consistent with moderate growth"
● S&P Hands Greece World's Lowest Credit Rating *Lower than Pakistan and Ecuador*
● Global Manufacturing Growth at 8-Month Low in May (Chart) *23rd month of expansion*
● China Manufacturing Index Dips in May (Chart) "Moderation rather than meltdown in growth"

USA Real GDP % by Quarter (Chart) The chart below is the annualized percentage change of the Real GDP (seasonally adjusted at annual rate) from the preceding quarter (QoQ), a common GDP measure. As can be seen, there was a negative dip into the Great Recession beginning Q3 2008, a rebound peaking in Q4 2009. The Q4 2010 +3.1% is now the recent recovery peak. The chart covers the USA Quarterly GDP as reported by the Bureau of Economic Analysis from Q1 2005 through the latest quarter reported.

International Monetary Fund: GDP Growth Projections by Year (Chart) Below is the IMF GDP Growth Projections by Year for the World, USA, the Euro Area, Japan, and UK. These projections are from the June 2011 IMF World Economic Outlook Update.


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