logo
  Join        Login             Stock Quote

Can The U.S. Economy Continue To Fend Off Euro Risk?

 June 08, 2012 10:34 AM


(By Capital Spectator) The U.S. economy is struggling on a number of fronts, but it's also encouraging (and surprising?) that the economic turmoil in Europe hasn't taken a deeper bite out of America's moderate growth path of late. That could change, of course, but for now there's still optimism that we'll sidestep a new recession.

Consider, for instance, yesterday's update of the Livingston Survey, the oldest continuous polling of dismal scientists on the economic outlook:

The 32 participants in the June Livingston Survey have raised their estimates of output growth for 2012. The forecasters, who are surveyed by the Federal Reserve Bank of Philadelphia twice a year, project that the economy's output (real GDP) will grow at an annual rate of 2.2 percent during the first half of 2012 and 2.6 percent during the second half of 2012, followed by growth of 2.3 percent (annual rate) in the first half of 2013.

[Related -The SEC Does Some Things to Money Market Funds]

Forecasters can be wrong, of course. In fact, you should count on no less to some degree. But the same applies to those who are predicting a new recession any day now. But if we're analyzing the numbers reported so far, arguing on behalf of a new slump in the near term requires anticipating the economic news in the weeks and months ahead will deteriorate substantially relative to what's known in the here and now.

For example, many of the usual suspects that tell us when recession risk is high and rising are still signaling that contraction danger remains minimal. To cherry pick a few benchmarks, the latest numbers on industrial production, private nonfarm payrolls, jobless claims, and real personal income excluding current transfer receipts remain encouraging vs. year-earlier levels. One notable exception that looks troubling is the St. Louis Financial Stress Index, which has been rising recently. No doubt some of this is related to financial pressures in Europe.

[Related -Are the Reds in the Red?]

Those pressures are spilling over into the real economy on the Continent, as this chart posted earlier this week by Dr. Ed Yardeni reminds:

The recent drop in the euro area's manufacturing purchasing managers index to 45.1 (a reading under 50 implies a contracting economy) "confirmed that the region has fallen into a recession that is worsening," Yardeni observed on Tuesday. That's a problem, he wrote, because

manufacturing has been the leading source of growth during the latest global economic recovery, including in the US. The concern is that neither the US nor China can continue to grow for very long if the European recession continues to deepen. I think they can. However, there has always been a very strong correlation among the various [manufacturing indices] over the business cycle. So it's not surprising that the stock market's reaction on Friday [June 1] suggests that investors are skeptical and questioning whether the [manufacturing indicators] can decouple.

If the blowback from Europe gets worse before it gets better, there's a possibility that the Federal Reserve may roll out a new round of monetary stimulus. As always (especially at this late date) there's debate about the efficacy of new monetary action. In any case, Janet Yellen (the Fed's vice chair) wants everyone to know that monetary stimulus is an option that's very much on the table. As she explained on Wednesday:

I am convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions.

Meantime, the waiting game goes on. The big macro question in the states is deciding if the euro dangers will derail the U.S. economy. It's reasonable to think that if Europe's problems could be contained, U.S. growth expectations would improve considerably. But there's the opposite side of that equation to ponder as well.

"If Europe implodes, Obama probably won't be re-elected," says Gary Smith, executive director of the American Academy.

Reading between the lines, Obama's re-election risk vis-à-vis Europe is clearly bound up with the calculation that a euro implosion will sink the U.S. economy and, by association, the President's political fortunes.

But all of this is speculative. Given the numbers in hand, the U.S. economy is forging ahead. The growth is precarious, to be sure. If momentum stumbles and the outlook darkens, we'll soon see the hard evidence in the economic updates. Yup, it's still touch and go, with every new data point scrutinized intensely for fresh clues. Then again, we should all be familiar with the routine by now. The new abnormal is approaching its fourth anniversary, and no one's predicting that a stronger, broader recovery in the global economy will usher in a regime shift any time soon.
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageChipotle Mexican Grill, Inc. (CMG) Q2 Earnings Preview: Will Higher Traffic Offset Higher Costs the Key

Chipotle Mexican Grill, Inc. (NYSE:CMG) will host a conference call to discuss second quarter 2014 read on...

article imageNetflix, Inc. (NFLX) Q2 Earnings Preview: The Ruby Month for a Reason

Netflix, Inc. (NASDAQ:NFLX) will post its second-quarter 2014 financial results and business outlook on its read on...

article imageLadenburg Thalmann Financial Services (NYSEMKT:LTS): Heavy, Durable Insider Buying

Ahh, but any worries over price levels didn’t stop multiple insiders at Ladenburg Thalmann Financial read on...

article imageInternational Business Machines Corp. (IBM) Q2 Earnings Preview: Small Beat and Pop

International Business Machines Corp. (NYSE:IBM) will host a conference call Wednesday, Jul. 16, 2014 at read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

Jobless Claims Drop To 8-Year Low
More Articles on: Finance



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.