The Weakening Economy

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The Telegraph (UK) – Fed fiddles as America slides back into recession
The Economic Cycle Research Institute in America has doubled down on its recession call.
A fresh US slump is not just a risk any longer. It has already begun. Output slowed to stall speed over the winter. The US economy tipped into outright contraction in the second quarter, even before facing the “fiscal cliff” later this year – tightening of $600bn or 4pc of GDP unless action is taken to stop it. Nothing serious is yet being done to head off the downward slide. If ECRI is right, the implications for the global system are ugly. It is never easy to read the signals at inflexion points. Washington is always caught off guard. As ECRI’s Lakshman Achuthan says, it took the Lehman collapse ten months into recession in September 2008 to “wake people up”. What we know is that retail sales rolled over in February and broader trade sales peaked in December. Industrial output peaked in April. The nationwide ISM index of manufacturing crashed through the break-even line of 50 in June, just as it did at the onset of the Great Recession in late 2007, but this time at a faster pace.

The Financial Times – Economy worries keep stocks in check
Fed chairman Ben Bernanke will start his two-day, twice-yearly testimony on the economy to Congress on Tuesday, and investors will be keen to see if he makes any comments about the conditions required for him to deliver more stimulus. But this requires a difficult sentiment balancing act for traders, since the chances of more Fed easing only improve if US economic data get worse. Analysts at Barclays said in a note that macroeconomic concerns would continue to crimp optimism in coming months: “Although we continue to believe that the global economic prospects are likely to recover into the second half of the year, data are likely to remain choppy in the near term and keep investors concerned about the future trajectory.” Such powerful undercurrents of angst are illustrated by the performance of perceived fixed-income havens. The 2-year German Schatz yield fell to a record “low” of minus 0.058 per cent as investors are so desperate to park their money in a safe place that they are in effect prepared to pay Berlin for the privilege to lend to it.

Reuters.com – Fewer U.S. companies planning to hire; Europe looms – poll
American companies are scaling back plans to hire workers and a rising share of firms feel the European debt crisis is taking a bite out of their sales, a survey showed on Monday. Only 23 percent of the firms polled in June plan to add to staff in the next six months, the National Association for Business Economics said on Monday. NABE’s prior survey, conducted in late March and early April, had shown 39 percent of companies planning to add workers.

CNBC.com – Market Outlook: Bernanke May Set Tone for Rest of Summer
While many traders hope for talk of more Fed easing, Federal Reserve Chairman Ben Bernanke will likely tell members of Congress in the coming week that it’s the lawmakers who need to act. Bernanke gives his semi-annual testimony on the economy, before a Senate panel Tuesday and a House Financial Services committee Wednesday. “He is going to scold yet again on the fiscal cliff,” said Diane Swonk, chief economist at Mesirow Financial. “He has to mention it. It’s already suppressing growth right now.” Besides Bernanke, there is a busy economic calendar, starting with Monday’s retail sales and including consumer inflation and several housing reports.

The New York Times – As Bad as It May Be in the U.S., It’s Worse in Europe
THE pace of job growth fell sharply in the United States this spring, according to the Labor Department, and consumer spending weakened. But while the June numbers showed no uptick in hiring, they did contain indications that consumers had more money to spend because those with jobs were working longer and being paid more. “The latest report held some very good news, which was widely overlooked,” said Ed Yardeni, of Yardeni Research, an economist and longtime Wall Street strategist. “This could very well lead to surprising strength in retail sales in June and July.” He pointed to a Labor Department index of total hours worked, which rose to the highest level since 2008, and to an index of total private sector payrolls. As can be seen in the accompanying charts, that index, after being basically flat for three months, accelerated. As a result, he said, “consumer spending should soon show renewed vigor.” The fact that those with jobs are working longer hours may eventually lead to an uptick in hiring, but few expect rapid improvement. The minutes of the June meeting of the Federal Open Market Committee, released this week, said most members had reduced their expectations of employment growth.

Source: Bianco Resarch