More fiscal warfare on the horizon A new committee must find further savings
S&P under pressure over US credit rating Agency silent so far on possibility of downgrade
US deserves double A Carmen and Vincent Reinhart on debt ceiling
Economists React: Very Weak, Very Disappointing The Institute for Supply Management’s gauge of manufacturing activity slipped to its lowest level in two years in July. Economists and others weigh in.
-The key issue looking forward… is why orders dropped back after rising slightly in June? It might be a response to debt ceiling fears, or a reflection of weak consumption. Either way, it makes it hard to be a Q3 bull. Growth nearer 2% than 3%? -Ian Shepherdson, High Frequency Economics
-It stretches credibility to say that manufacturing conditions continue to slow because of supply-chain disruptions. We believe that unless Friday’s jobs report shows a sharp pickup in job growth, forecasters will be marking down third-quarter growth to closer to 2%… The economy seems to be mired in a growth recession where the economy cannot expand fast enough to reduce unemployment. -John Ryding and Conrad DeQuadros, RDQ Economics
“The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support,” Fed Chairman Ben Bernanke said last month. “We have to be careful,” Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in an interview. “The notion that we can have a substantial impact on output and employment over the near term is a difficult case to make.”
U.K. Manufacturing Contracts The U.K. manufacturing sector posted an unexpected contraction in July, falling to its most sluggish level in more than two years.
OECD Inflation Rate Eases Data released by the Organization for Economic Cooperation and Development on Tuesday showed consumer prices in its 34 member countries rose by 3.1% in the 12 months to June, having risen by 3.2% in the year to May. However, food inflation picked up, with prices having risen by 4% in the 12 months to June, up from 3.9% in the year to May. Another worrying development for central banks is that prices of goods and services other than energy and food continued to rise at the 1.7% rate recorded in May, which was the fastest since July 2009.
Euro-Zone Producer Prices Flat Eurostat said producer prices in June were unchanged from May, and up 5.9% from June 2010. The annual rate of increase was the lowest since January, and has now fallen for two straight months. That appears set to continue, with manufacturers surveyed by the European Commission last month indicating they expect to raise their prices less rapidly in coming months. The levelling out in factory-gate prices was partly due to a 0.3% decline in energy prices, which followed a 1.1% drop in May. Offsetting that decline, prices of capital goods rose by 0.2%, while prices of intermediate and nondurable consumer goods were up 0.1%. Prices of durable consumer goods were unchanged. Excluding energy, factory-gate prices rose by 0.1% on a monthly basis, and 4.2% annually. In the European Union as a whole, producer prices were also flat on the month, but up 6.9% on the year.
FIBER: Commodity Prices Suggest Lackluster Economy On balance, industrial commodity prices have been moving sideways since the spring. At 174.8, the latest price index reading from the Foundation for International Business and Economic Research (FIBER), which covers industrial materials prices, is just slightly below where it was in May. That sideways movement is consistent with the recent weakness in industrial output. Three-month growth in industrial materials output has been zero versus 5% growth in Q1. The weakness does not, however, suggest that prices are low or that output has fallen. The overall level of the FIBER index is up by three-quarters from its recession low. In conjunction, industrial output is up 13% from its nadir.
Vital Signs: Fewer Home Vacancies Fewer homes in the U.S. are sitting empty than earlier in the year. Residential vacancy rates ticked down during the second quarter from the first quarter as well as the year-ago period, to 9.2% for rental properties and 2.5% for privately owned homes. Both are below their recession-era levels but reflect continued weakness in the housing market.
Australia Leaves Key Rate Unchanged Australia’s central bank left its cash rate at 4.75% in August for a 10th month in succession as it weighs conflicting economic data.