There appears to have been a significant slowdown in the second quarter. In particular we saw the pace of job creation slowed to a pace of 75,000 per month in the second quarter down from 226,000 in the first quarter and there are also concerns about slowing growth globally, beyond Europe but also in the emerging world and China, which was highlighted in the minutes (to the June meeting) this week. So, where do you think we’re headed? Are we just going to remain in a soft kind of pace? Are there upside risks to growth? Are there downside risks to growth?
Growth has definitely softened. The data are unmistakably weaker in the second quarter than we had hoped they would be. I think everyone recognized the first quarter and the end of last year were a little bit stronger than we might be able to sustain in the middle of the year but it’s definitely come in softer than I’d expected.
At the beginning of the year, it seemed as if Europe wouldn’t maybe weaken as much as we thought but lately the weakening from Europe has been coming online. In the U.S., I think we’re in a situation where we’re going to fluctuate from between the level where we are now to a level that’s more like we saw six or eight months ago. We’re going to have soggy patches, we’re going to have stronger spurts. If you look back over the last three years that’s the record you see. I don’t see a reason for that to change markedly.
There are some risks to that outlook. I do see downside risks of a more substantial global growth slowing than we’ve seen so far. I also see upside risks over the last twelve months. I think there’s enough potential for us getting past major sources of uncertainty. There’s a risk that resolving that uncertainty unleashes a stronger more positive outlook on the part of businesses and consumers that leads to stronger growth than we’ve seen so far.
And that would be some sort of resolution in Europe?
And the U.S. fiscal situation. On the real side I think (the risks) are sort of balanced. But my central outlook is for kind of soggy growth for the remainder of the year with the likelihood of some gradual pick up after that.