Sunday, May 29, 2011

Things are getting better, unless they are getting worse

Economic data and messages are mixed. At a two-day summit in Deauville, France last week, G-8 leaders from Canada, the European Commission, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States released a statement that said, “the global recovery is gaining strength and is becoming more self-sustained. However, downside risks remain, and internal and external imbalances are still a concern," and added “the sharp increase in commodity prices and their excessive volatility pose a significant headwind to the recovery.” Separately, in the U.S, 1) the National Association of Realtors announced that April pending home sales declined by 11.6% from the prior month (a 0.9% decline was expected) and by 26.5% from last year, 2) the Commerce Department reported that first quarter GDP growth was weaker than expected – at 1.8%, 3) the Labor Department reported that jobless claims for the week ending May 21 unexpectedly increased by 10,000 to 424,000 and 4) the University of Michigan Consumer Sentiment Index report for May showed unexpected improvement with a rating of 74.3.

MY TAKE: The message from the summit does not seem reassuring and suggests that - things are getting better, unless they get worse. In addition, most of the U.S data suggests an economic slowdown – many strategists are calling it a “soft patch”. It seems that the expected benefits of the QE2 stimulus process are not reaching the broader U.S. economy and increases in fuel and food commodity prices, high unemployment and housing related issues are hindering a sustained recovery.

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