Black Wednesday and the 2010 midterms
I think we can officially declare Recovery Summer dead. Here is today’s tale of the economic tape.
Here is IHS Global:
Combining the bigger-than-expected trade deficit with other weak data suggests that Q2 growth was only 1.2% rather than the 2.4% originally estimated, placing the economy on even shakier ground than it seemed, and underlining why the Fed has shifted towards an easing bias.
The market’s might face their biggest downside economic surprise of this recent growth slowdown yet in the form of a downward Q2 GDP revision, which today’s U.S. trade deficit figures suggest will be a whopper. We now expect the 2.4% advance Q2 GDP gain to face a huge downward adjustment to the 1% area, with a hit from trade of as much as $18 bln that we conservatively peg at $12 bln, as the BEA’s seemingly pessimistic $45 bln deficit assumption for June turned out to be excessively optimistic instead. A change in China’s VAT rebate policy in June may explain a part of the surprise, though the GDP gain in Q2 is likely poised for an alarming 1-handle regardless of this distortion.
The nominal US trade deficit widened to $49.9bn in June from $42.3bn in May, greater than we ($43.5bn) and the consensus ($42.1bn) had expected and the largest monthly widening in the deficit on record. In real terms, the trade deficit widened to $54.1bn from $46.0. This reflected both soft exports and a surge in imports: nominal exports were down 1.3% m/m (with a 2.2% drop in goods exports) and imports up 3.0% (with a 3.3% jump in the goods component). Both were fairly broad based, but imports were partly driven by a 53.2% surge in the volatile civilian aircraft component, following a 48.9% drop in May. The deterioration in the trade balance in June was much sharper than had been assumed by the BEA in the advance Q2 GDP report. As such, Q2 GDP growth is now tracking just 0.3% q/q (saar), relative to our previous tracking estimate of 1.6% and the initially reported 2.4%.
More and more, Wall Street seems to be converging on the Goldman Sachs forecast of a second-half growth slowdown. Hard to see how that helps unemployment or Democrat chances of holding both the House and Senate. Remember, if the labor force had not shrunk by one million workers since April, the unemployment rate would be 10.4 percent. Voters may not know those numbers, but they know the economy is far from healthy.