What’s Missing?
Economics and central bank policy will most likely play second fiddle to the ongoing debt ceiling debate in the United States, the fiscal woes in Europe, and the heart of the second quarter earnings reporting season for S&P 500 companies. Housing data (homebuilder sentiment, housing starts, building permits, existing and pending home sales) will dominate the week, but the key report of the week may very well be the July reading of the Philadelphia Fed manufacturing index. Overseas, data on June consumer spending in Japan and July manufacturing in China will draw the most attention from market participants. It is a relatively quiet week for the Federal Reserve, with only a few speakers on the docket. Meanwhile the central banks in Brazil, Canada, India and South Africa meet this week, with only Brazil poised to raise rates. Indeed, many overseas central banks may now be much closer to the end of their tightening cycles than they were in the early part of 2011.The Great Recession ended over two years ago and yet, economic growth remains sluggish, the labor market is still moribund, and consumer confidence has barely budged since June of 2009. So what’s missing? The answer of course, is in the question: The recovery is missing growth, and jobs and confidence, but why? The section below briefly examines how we got here (i.e. two years into the recovery) and what makes this recovery “different” from prior economic recoveries. Our answers may surprise you.In testimony to Congress last week (July 11 – 15), Federal Reserve Chairman Ben Bernanke noted that although the economy was growing, and expected to continue to grow in the coming quarters, headwinds to growth were prevalent. The headwinds noted by Bernanke included the following:
- Slow growth in consumer spending, even after accounting for the effects of higher food and energy prices
- The continuing depressed condition of the housing sector
- Still-limited access to credit for some households and small businesses
- Fiscal tightening at all levels of government.
In prior public appearances over the past few months, Bernanke, in addition to mentioning temporary factors—the earthquake and Tsunami in Japan and its impact on the global supply chains, severe weather and higher energy prices—has cited “weakness in the financial sector” and “balance sheet and deleveraging issues” as longer-term issues that may be impacting the recovery.
