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It was yet another week of shockingly negative economic reports, which you may feel has Wall Street economists worried that the economy is running into some thing much more than just a brief soft patch (their common term of current weeks).
But they mostly stay convinced that the dilemma is only temporary, that the economic reports are coming in worse than their forecasts only mainly because they under-estimated the impact the surge in power and commodity rates would have on consumer spending, along with the impact the Japanese earthquake would have on auto and technologies production.
And they say those effects are only temporary.
Let’s hope they are correct, since the extra reports this week had been awful.
They included that household costs are nonetheless declining; that Pending House Sales fell 11.6% in April to a 7-month low; that Consumer Confidence unexpectedly fell from 66 in April to 60.8 in Might; that the ISM Mfg Index plunged to 56.6 in May well from 67.6 in April; that Factory Orders fell 1.2%; that auto sales fell much more than forecasts.
The reports ended for the week with Friday’s report that only 54,000 jobs had been designed in May well versus 232,000 in April, and compared towards the consensus forecast that 175,000 jobs could be developed. And also the unemployment rate rose to 9.1% in May possibly, from 9.0% in April, versus forecasts that it would decline to 8.9%.
This week’s reports came on best of 4 weeks of similarly dismal reports, which includes that the Conference Board’s Leading Economic Indicators dropped into negative territory for the initial time in 9 months, and that Durable Goods Orders skilled their largest decline because last August. New house begins and permits for futures begins plunged additional than forecasts, and existing household sales unexpectedly plunged, now down 12.9% year-to-date.
On the other hand, not just is Wall Street not overly disturbed by the reports, but investors aren’t all that concerned either.
In spite of 5 straight weeks of decline, the Dow is only four.7% below its peak in the finish of April, and it is nonetheless up five.4% for the year so far. And, what decline there has been was on low volume, no signs of aggressive selling.
1 theme I maintain hearing from bullish investors is that the Federal Reserve won’t enable economic growth to slow to any degree (beyond a brief soft patch), with out stepping in with one more round of stimulus. Nor will it permit the stock marketplace to decline to any degree.
Right after all, they remind me, Fed Chairman Bernanke practically guaranteed that inside the Fed’s statement immediately after its last FOMC meeting, in which it stated, “The Committee will continue to monitor the economic outlook and economic developments, and will employ its policy tools as important to support the economic recovery.”
Meanwhile, as I wrote in early April, the similarities to a year ago are spooky. Amongst the lengthy list of similarities I noted then, had been that a year ago government stimulus programs had been also coming to finish, the economy was already showing severe signs of slowing, the stock industry looked to be overbought, and investor sentiment was unusually confident and bullish. The subsequent event a year ago was that the marketplace topped out in the finish of April into a correction, and that has now potentially grow to be yet another similarity of this year.
So will the rest with the events of last year also repeat this year?
Last year, the economy continued to weaken, plus the stock industry remained in a correction until mid-July, throughout which the S&P 500 lost 16% of its value.
And then the Fed seemed to panic and stepped in with a promise of a different round of quantitative easing, which was dubbed QE2. The economy picked up once more, and also the stock industry halted its decline, recovered its losses, and went on towards the highs reached in the finish of April this year.
The big question is, if the economy continues to slow this year, as well as the stock marketplace continues to decline, will the Fed push the magic button once more?
Chairman Bernanke received considerable criticism at property and globally for his QE2 decision last fall. It also doesn’t seem to have worked all that well. The flood of extra dollars into the economic system pumped up the stock industry and commodity rates, creating inflation, but its impact on the economy was apparently only temporary.
And this year, Congress would probably object mightily to a different round of stimulus, given its new determination to cut government costs in efforts to tackle the record budget deficits.
So, unless the economy really nose-dives, I suspect the Fed will enable the marketplace system to function normally this time around, allowing economic growth to slow if that is its inclination, plus the stock marketplace to adjust to that, with out government interference.
But we shall see. So far the similarities to events a year ago continue to click into place.
In other News and Society United Nations news:
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