Yesterday Bill Gross tweeted, “US economy approaching recession when measured by employment, retail sales, investment, and corporate profits.” Ben Bernanke also noted in his testimony yesterday that the Federal Reserve is carefully looking at the economy, particularly the unemployment rate. To illustrate the measurements Gross and Bernanke are looking at, we provide the charts above.
Bloomberg.com – Pimco’s Gross Says U.S. Is Nearing Recession
Bill Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co., said the U.S. is approaching a recession as BlackRock Inc. (BLK) (BLK) expects the Federal Reserve to take more steps to support growth. Five-year Treasury yields slid to a record 0.577 percent yesterday after an unexpected drop in U.S. retail sales rekindled speculation Fed Chairman Ben S. Bernanke will use testimony today to hint at further monetary easing. That followed data earlier this month showing American employers added fewer-than-estimated workers to payrolls. Goldman Sachs Group Inc. and Deutsche Bank AG cut forecasts for U.S. growth.The U.S. is “approaching recession when measured by employment, retail sales, investment, and corporate profits,” Gross, who manages the $263 billion Pimco’s Total Return Fund, wrote on Twitter yesterday.Ten-year Treasury yields added one basis point to 1.48 percent as of 4:11 p.m. in Singapore, compared with the all-time low of 1.44 percent reached June 1. The MSCI World Index of shares rose 0.2 percent.Bernanke will present his semi-annual monetary policy report to lawmakers in the Senate and House of Representatives today and tomorrow. He said on June 20 that the central bank will be prepared to take more steps, including additional asset purchases, if the labor market doesn’t improve continuously.
The Financial Times – Bernanke gloomy on economic outlook
Ben Bernanke offered a gloomy outlook for the US economy but the Federal Reserve chairman offered no hint of further monetary easing in testimony to Congress. “We are looking very carefully at the economy, trying to judge whether or not the loss of momentum we’ve seen recently is enduring, and whether or not the economy is likely to continue to make progress,” he said, warning that progress in reducing a 8.2 per cent unemployment rate “seems likely to be frustratingly slow”. The testimony initially disappointed markets – which are on tenterhooks for a signal of further monetary easing from the Fed – with stocks falling and the dollar rising before turning around later in the day. A run of weak reports on the economy, with net job creation falling to 80,000 in June, has led to speculation that the Fed could ease policy further as soon as its August meeting. Mr Bernanke said that recent data points to annualised growth of less than 2 per cent in the second quarter of 2012. “Households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low,” he said.
The Wall Street Journal – Fed Dims View, Weighs Its Options
Federal Reserve Chairman Ben Bernanke delivered a bleak new assessment of the U.S. economy to lawmakers on Tuesday but remained guarded about what, if anything, the Fed would do about it. Policymakers at the central bank lowered their growth projections in June and seem to be preparing for additional moves to spur the economy in the weeks or months ahead. But officials disagree about the severity and durability of the slowdown and are worried about the costs and benefits of measures they have employed to heal the economy. That has Mr. Bernanke taking a cautious approach as he considers more actions.”We haven’t really come to a specific choice at this point,” Mr. Bernanke told the Senate Banking Committee, after delivering his semiannual testimony on the economy and monetary policy. “We are looking for ways to address the weakness in the economy should more action be needed.” Investors have been on edge about what the Fed might do and initially sold stocks when Mr. Bernanke’s testimony was released, disappointed he didn’t send a stronger signal that more stimulus was coming. But later they pushed share prices higher when he enumerated steps the Fed might take.
Source: Bianco Research