Next week will be an interesting week, especially with the FOMC meeting on Tuesday, 18th Sept 2007. Given the damage done and the meltdown in subprime lending, the expectation is extremely high from investors for Fed to cut interest rate.to help support the U.S. economic growth, which has indirect effect on the global stock markets with the exception of China. But there’re concerns that Bernanke might disappoints everyone again.
The more volatile household survey used for the unemployment statistics showed a 316K plunge in employment. Nonfarm payrolls fell from 138,041,000 in July to 138,037,000 in August – the decline of 4,000 is well within the margin of error. The average payroll gain in the past three months is just 44,000, with financial and construction sector announcing layoffs. The weak payrolls however are not happening across the the broader economy to other sectors.
Another critical fact that cannot be ignored is that the consumer spending trends remain steady. Consumer spending is almost two-thirds of the GDP calculation and there is no obvious sign that it is declining. In a recession, consumer spending would have weakening. Furthermore, the argument that consumer spending has to fall given the decline in payrolls simply does not add up.
So while the economy is sluggish, it’s still far away from the “recession”. Bernanke just might lower the feds rate at 18th September’s meeting and will just stop and move in “slow-motion” thereafter onwards.
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September 16th, 2007 by financetwitter
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