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Thursday, May 26, 2011

Economic Slowdown: Temporary or Something Worse?

by Calculated Risk on 5/26/2011 07:55:00 PM

I'll have some thoughts on this topic in the next few days, but here are a couple of articles with differing views.

From David Leonhardt at the NY TimesThe Economy Is Wavering. Does Washington Notice?

The latest economic numbers have not been good. ... Macroeconomic Advisers ... tries to estimate the growth rate of the current quarter in real time, and it now says annualized second-quarter growth is running at only 2.8 percent ... Not so long ago, the firm’s economists thought second-quarter growth would be almost 4 percent.

An economy that is growing this slowly will not add jobs quickly. For the next couple of months, employment growth could slow from about 230,000 recently to something like 150,000 jobs a month, only slightly faster than normal population growth. That is certainly not fast enough to make a big dent in the still huge number of unemployed people.
The latest signs of weakness suggest that policy makers remain too sanguine. It is easy to see how the rest of 2011 could end up disappointing, much as 2010 did.
And from Patti Domm at CNBC: Some Economists Expect Recovery Later This Year
"We can put our finger on the problems, and they're temporary, I think," said Mark Zandi of Moody's "Oil prices were a blow. You can see that in the consumer spending numbers in Q1, and prices are coming back down."
Goldman Sachs economists Andrew Tilton said the ripple effect from supply chain issues were a big part of the reason for the [slow down, however] "That doesn't explain all the weakness relative to our original forecast. There are other things going on, the most obvious of which is oil prices," he said.

... "If oil is coming back down you certainly wouldn't want to be cutting your growth forecast for the second half of the year," he said.
"In so far as you think it's supply chain-related, the deeper the cutback due to supply chain factors now, the better you should feel about second half because it should bounce back," said Tilton.
The supply chain issues should be resolved over the next several months. And gasoline prices are falling and will continue to decline over the next few weeks, but oil at $100 a barrel is still a drag on the economy.

Weekly Initial Unemployment Claims increase to 424,000
Q1 real GDP growth unrevised at 1.8% annualized rate
LPS: Mortgage Delinquency Rates increased slightly in April, Foreclosure pipeline "Bloated"
• Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS