A month ago, it looked as if the economy was confronting its worst dangers since the collapse of 2007-2008. In the United States, job creation and GDP growth had slowed significantly. Washington, D.C., was paralyzed and unable to address the situation. Europe, already in another recession, was facing the breakup of the eurozone. And growth was decelerating at an alarming rate in China. Since then, the Dow Jones Industrial Average has rebounded, a euro-supporting government was elected in Greece and life goes on.
Have we dodged the bullet? Unfortunately, no.
Today, the Institute for Supply Management reported that its manufacturing index had contracted for the first time since 2009. Things are no better in Europe, and Germany’s manufacturing sector is now slipping fast. Yet another report showed China factory output fell in June. And, as the New York Times reported, Beijing manipulates data to conceal the real condition of China’s economy. Commodity prices are dropping because of fears of a worse slowdown.
We’re nowhere near out of the woods. To be sure, while the banking system remains unreformed, it is not sitting on top of a massive speculative bubble as it was before the crash. Dangers of contagion from Europe, however, are real. Also, housing is finally at bottom and recovering slowly in some places. Cranes are a familiar species again on the Seattle skyline.
So we’re in an awaiting. This month’s reports on June jobs and second-quarter GDP will be more important than usual.
And Don’t Miss: Governance questions for the New York Fed || Baseline Scenario
Today’s Econ Haiku:
The LIBOR labor
More bankers acting badly
Don’t bank on jail time