Is the current economic slowdown temporary?
Recently the data has been mixed. Only 54 thousand payroll jobs were added in May, auto sales slowed, manufacturing growth slowed, housing prices are declining again, and retail sales declined for the first time in 10 months. One economist raised the probability of a “double dip” recession to 20%.
To be sure, much of the recent weakness is related to the tragic events in Japan that started with the earthquake and tsunami on March 11th. Manufacturing supply chains were disrupted, especially in auto parts. Toyota, Honda, and Nissan slowed production by as much as 30%, and that’s rippled through much of our economy. In addition, rising gas prices, although moderating now, had a chilling effect on consumer spending, even as temperatures across the country rose. And severe weather in the heartland—floods, tornadoes, fires—has impacted much of the farm economy, where incomes had been rising due to higher crop prices.
Some factors aren’t temporary: Federal stimulus spending is slowing; state and local governments are cutting back; and the fiscal crisis in Europe continues to fester. But these issues have been in the works for a while—there’s nothing new. In the meantime, much of the supply disruption seems to be behind us. And gas prices seem to have peaked.
Our expectation has been that the economic recovery that began in June of 2009 would be sluggish and choppy. This latest news has been some of the chop.
Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!
Follow me on Twitter @GlobalMarketUpd