If Reuters polls onthe euro zone this year have proved anything, it’s that forecasts concerning the future of the currency union really boil down to national bias and not just plain economics.
Ben Bernanke has done it again. In his much-anticipated speech Friday, the Federal Reserve chairman managed to tell both investors and politicians what they wanted to hear – that “the stagnation of the labor market in particular is a grave concern” – all while saying next to nothing new about where U.S. monetary policy is actually headed. That the Fed, as Bernanke also noted, stands ready to ease policy more if needed was well known to anyone paying attention the last few months. We also know that the high jobless rate, at 8.3 percent in July, has long been Bernanke’s main headache in this tepid economic recovery.
Ever since an epic financial crisis hit the United States in 2008, mainstream economists, most of whom utterly failed to foresee the oncoming train wreck, have been scrambling to introduce a financial sector dimension to their models. It was a conventional approach that detached the study of financial stability from macroeconomic variables, the narrative goes, that prevented the experts from seeing the build-up of an unsustainable housing bubble that, when it crashed, took down the economy down with it.
Another round of bad news on the economy has prompted Goldman Sachs to shave another tenth of a percentage point off their already bleak second quarter U.S. GDP forecast.
It’s already been established that economists’ predictions about the euro zone’s future hinge largely on where their employer is based. Euro zone optimists tend to work for euro zone banks and research houses, and euro zone sceptics for companies based outside the currency union.
Despite all the flashing yellow signs in the global economy, banking sector forecasters are sticking – if a bit uneasily – to their modestly optimistic outlook. Still, a group of economists from the American Bankers Association, a banking lobby that presented its latest economic projections to Federal Reserve officials this week, highlighted plenty of risks. Chief among them were financial contagion from Europe and sharp fiscal adjustments in the United States.
from Edward Hadas:
In the labour market, there is a fine line between inefficiency and wastefulness. “This place is so inefficient,” it is said, often with justification, especially in rich economies. “We could do everything we’re supposed to with a third fewer people.” Factories can be streamlined, high quality new equipment can save on labour, and offices are prone to the incubation of worthless bureaucracy.
Weak U.S. economic growth in the first quarter was driven in part by a pullback in business investment — but a sharp decline in government spending also played a role. Gross domestic product grew 2.2 percent, well short of the Reuters consensus forecast of 2.5 percent. Business spending fell 2.1 percent while government expenditures saw a 3 percent drop linked to lower defense spending. Consumer spending proved a bright spot in the report, climbing 2.9 percent. Still, there is concern that this too could fade because an unusually warm winter may have brought some spending forward.