Now that the debt ceiling has been raised and the media have already turned to the question of how Obama will be celebrating his 50th birthday, it behooves us to consider the new market slump that has sunk in following registration of the reality of America’s debt situation. Immediate crisis would seem to have been avoided but it is clear that this was always a band-aid attempt at a solution and the larger problems have not been addressed.
Economists are now pointing to several weakening indicators that suggest the possibility of falling back into recession – all the more highlighted by the White House’s lip service promoting the injunction that “there will be no double dip.” Here are several of the latest warning signs that forecast gloomy skies ahead, at least domestically. As CNN Money reports, both Martin Feldstein (former president of the National Bureau of Economic Research) and Larry Summers – top economists from either side of the spectrum – cautioned Wednesday that there is a “significant threat of a new recession.”
Consumer and Government Spending Cuts
First of all, housing continues to drag down the economy, and this has put a brake on any growth in consumer spending. Meanwhile, about $2.1 trillion in spending cuts was called for as part of the debt ceiling agreement, and some economists are certain this will further pull down the economy, expecting that it could cost 320,000 jobs in 2012.
Manufacturing and Industry
No one is expecting any rebound in real estate or home starts anytime soon, and other industries are plagued by the threat of coming regulations – such as health care and financial services. Other sectors, such as defense, energy, and higher education, will be set back by the spending cuts.
This Friday’s jobs report is expected to forecast a gain of only 75-77,000 jobs, leaving the unemployment levels unchanged at 9.2%. The debt ceiling agreement is also not expected to promote any new growth in job hiring, since overall demand is still sluggish. Forecasts are confusing, as Moody’s Analytics still expects hiring to improve by the end of the year, but a recent report reveals that planned layoffs have hit a 16-month high.
Gross Domestic Product
GDP has been nearly flat for the first half of 2011, and given expectations for manufacturing, it doesn’t look like this can improve very much. On Wednesday, JP Morgan revised down the Q3 GDP forecast from 2.5% to 1.5%.
Markets have responded negatively to the rise in the debt ceiling, with the DJIA dropping 2% Tuesday as well as Wednesday. The S&P is now in negative territory for the year.
With all of the above taken into consideration, it is no wonder that gold is hitting new record highs again, topping up at an intraday high on Wednesday of $1664 an ounce. Further confirmation of bearish growth sentiment can be found in the slouching oil prices - WTI is now down to just $91.88, a low we haven’t seen for 6 months.Related Posts
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