MacroScope

Hints of recession in sleepy Richmond Fed data

It’s a report that gets little attention normally (We at Reuters geek out on Fed data a lot, and even we don’t write a story about it). But an unusually sharp contraction in the Richmond Fed’s services sector index for July caught the eye of some economists. The measure took a nosedive, falling to -11 this month, the lowest in over two years, from +11 in June.

Tom Porcelli at RBC says the plunge in new orders was downright scary:

Richmond Fed manufacturing got absolutely walloped in July. In fact, the all-important new orders component sank to an abysmal -25 from -7 in June and -1 two months ago. This is by far the weakest print since the recession. In fact, at no point has this metric been this low when we have not been in a recession.

To be sure, the data capture only two cycles prior to this one, but this doesn’t take away from the fact that the recent print is suggesting things could be much worse than advertised. We continue to hear how this year is “2011 all over again”, yet the data suggest it is materially worse.

Off the rails? Goldman lowers Q2 GDP ‘tracking’ estimate to 1.1 pct

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.

The July Philadelphia Fed business activity index improved less than expected and remained “significantly negative,” pointing to a third month of contraction. Following news that June existing home sales were much weaker than forecast, Goldman Sachs economists lowered their Q2 GDP tracking estimate to 1.1 percent from 1.2 percent.

The 5.4 percent month-on-month decline in existing home sales in June, reported by the National Association of Realtors, was much weaker than the consensus expectation, the economists noted. The 4.37 million annualized rate of sales was also lower than expected despite upward revisions to the May sales figures.

BoEasing

The Bank of England is finally catching a break. With Britain’s economy officially in recession, the BoE had been constrained from further monetary easing by a stubbornly high inflation rate. But as the global economy stumbles and Europe’s crisis rages unabated, UK price pressures may be giving way.

Barclays economist Chris Crowe argues:

We expect the MPC to announce an additional £50bn in QE at the July policy meeting.

CPI inflation fell to 2.8% y/y in May (Barclays 3.1%, consensus 3.0%) from 3.0% in April. Meanwhile, RPI inflation declined to 3.1% y/y (Barclays and consensus 3.3%), from 3.5%. With near-term inflationary pressures easing, the case for additional QE in response to faltering confidence is stronger.

“There are human beings involved” in austerity debate

The inventors of democracy and its greatest 18th century champions both go to the polls this weekend. Greek and French voters will try to elect governments they hope will help release their economies from the grips of the euro zone debt crisis.

While exercising their democratic vote, Europeans will also be contemplating another key issue: their basic economic survival.

That is why the debate about austerity versus growth has become so important.

Financial markets see fiscal discipline as crucial to get the euro zone’s debt burden back to sustainable levels. They are going into the Greek elections favoring triple-A rated bonds over peripheral counterparts.

Europe in recession – an interactive map

Spain has become the latest European country to slip into recession joining the Belgium, Cyprus, The Czech Republic, Denmark, Greece, Italy, The Netherlands, Ireland, Portugal, Slovenia and the United Kingdom.

Click here to view an interactive map.

*Updated to include Romania and Bulgaria

 

More Americans find aging is a gateway to poverty

Over the last several years, more Americans have found that aging has left them in the clutch of poverty. Between 2005 and 2009, the rate of poverty among American seniors rose as they aged, as did the number of people entering poverty, according to a new report from the nonpartisan Employee Benefit Research Institute (EBRI).

Poverty rates fell in the first half of the last decade for almost all age groups of older Americans (defined as age 50 or older) but increased since 2005 for every age group. Says Sudipto Banerjee, EBRI research associate and author of the report:

As people age, personal savings and pension account balances are depleted, and as people age, their medical expenditures tend to increase.

UK recession in charts

Britain’s economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012:

Starting real GDP at 100 in 2003 for the UK, U.S. and euro zone shows UK GDP flat since mid-2010 and well below the 2007 peak.

Survey data had been suggesting a stronger GDP number and perhaps points to upwards revisions to come.

Gimme a P, gimme an M, gimme an I

If you have ever wondered why financial markets and economists are interested in purchasing managers indexes, here is why:

A recovery in Europe? Really?

There’s a sense of relief among European policymakers that the worst of the euro zone’s crisis appears to have passed. Olli Rehn, the EU’s top economic officials, talked this week of a “turning of the tide in the coming months”. Mario Draghi, the president of the European Central Bank, speaks of “sizeable progress” and “a reassuring picture”.

At last week’s spring summit, EU leaders couldn’t say it enough: “This meeting is not a crisis meeting … it’s not crisis management,” according to Finnish Prime Minister Jyrki Katainen. All the talk is of how the euro zone’s economy will recover in the second half of this year.

But for the 330 million Europeans who make up the euro zone, the outlook has, if anything, darkened. As euro zone governments deepen their commitment to deficit-cutting, and rising oil prices mean higher-than-expected inflation, households can’t be counted on to drive growth. Not only did housing spending fall 0.4 percent in the October to December period from the third quarter, but unemployment rose to its highest since late 1997 in January.

A highly unequal U.S. recovery

No wonder most Americans feel like the recession never ended. A new paper from Emmanuel Saez, a Berkeley professor and expert on inequality, shows the overwhelming majority of income gains – 93 percent – accrued in 2010, the first full year of the U.S. recovery, went to the top 1 percent richest Americans. (Thanks to our friends at Counterparties for bringing the paper to our attention.)

The research suggests economic growth, even if it gathers speed, will not be nearly sufficient to close the income gap that has been the target of national Occupy protests. Instead, only drastic tax reforms of the sort seen during the 1930s might do the trick.

In 2010, average real income per family grew by 2.3% but the gains were very uneven. Top 1% incomes grew by 11.6% while bottom 99% incomes grew only by 0.2%. Hence, the top 1% captured 93% of the income gains in the first year of recovery. Such an uneven recovery can help explain the recent public demonstrations against inequality. It is likely that this uneven recovery has continued in 2011 as the stock market has continued to recover.