Economic Commentaries

Entries for April 2012


Economic growth was at a 3% annual rate late last year, but it slowed to about a 2% rate in this year's first quarter. What's more, the economy's momentum seems to have flagged as the quarter progressed. Home sales were relatively weak in February and durables manufacturers could not recoup orders that were lost in January. Regional purchasing managers indexes were uniformly weaker than generally expected in March. And for many regions activity growth slowed relative to February. Finally, the downward momentum that jobless claims had established leveled in March.

This record is consistent with our view in that we have thought activity was being artificially boosted by this year's non-winter winter, and that there would be a spring-time pay back. The degree of pay back may now be very dependent on price trends for necessities, particularly gasoline. Prices are already at a level that is negatively affecting behavior. IF the gasoline price remains at this level or rises further, consumer spending will be adversely affected. Indeed, this would be beyond the negative headwinds emanating from high debt, low savings, depressed home prices, and weak wage growth.

Conditions are not positive elsewhere in the world. Europe is clearly in recession, and now sovereign debt issues are creeping back into financial markets. China's economy is slowing at best, and this is beginning to weigh on commodity exporters like Australia, Europe, and Japan. Meanwhile, Japanese consumers are facing a sales tax increase this spring just as the economy is emerging from recession. For those with a bad memory, the last time this was tried was in the mid 1990s and it smothered an emerging recovery in Japan.

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