Laying down some markers to watch now that Memorial Day has passed and summer is almost upon us:
Will the recovery hold and expand? Housing prices are finally making a solid move upward. Consumer confidence is at a five-year high. They’re also taking on more debt again. This morning’s correction notwithstanding, stock prices are surging. Banks recorded their best profits on record. Some of the worst outcomes haven’t happened — a double-dip, eurozone contagion and war on the Korean peninsula. All this translates into a widening of the very slow recovery. On July 31st, the government will release its second-quarter gross domestic product report. Unfortunately this will contain revisions that make the economy seem to be growing faster than it is. The best metric of the strength of the recovery will continue to be unemployment. Eleven million Americans are still without jobs and although corporate profits are at a record, hiring has been fairly weak.
Will the stock market keep rocking? Stocks have been a good investment, especially in companies that came through the recession with healthy balance sheets. And where else could investors put their money with the pitiful returns from fixed-income? The big question is how long the run can last. You’ll find predictions across the spectrum. Average investors are just bystanders in this drama. With high-speed trading and huge institutions driving the action, even small macro warnings might trigger at least a modest correction. The big enchilada will be…
What does the Federal Reserve do? The Fed’s QE-eternity bond purchases and expansion of the money base have been a huge factor in the bull run. How Fed Chairman Ben Bernanke would respond to a real recovery has been for years a hypothetical question. Now it’s becoming smash-mouth real, as in the way today’s rise in Treasury yields has tanked the market. Even though he coined the metaphor, Alan Greenspan was never willing to take away the punch bowl as the party was getting going. Will Bernanke? And if so, how will the Fed’s pivot be handled — and received by the markets. Like much since 2007, this is unknown territory.
We will learn more about Boeing’s future. The stories are coming with regularity, most recently one where CEO Jim McNerney invoked the image of Darth Vader to punctuate his new emphasis on cost control (perhaps an unfortunate choice considering how Lord Vader ended up, how the costly Death Star performed and — if the Darth use was deliberate, McNerney is actually the father of a Jedi union knight. And we saw how well purblind cost decisions worked out for the 787…but I digress). Much attention will be focused on any clues as to where the 777x will be produced.
Will the Seattle-area economy get better? The latest 4.4 percent unemployment rate didn’t account for looming Boeing layoffs. Some small businesses continue to struggle (highlighted by the closure of City Kitchens in downtown Seattle after 25 years). Unemployment is certainly not solved outside of Seattle-Bellevue-Everett. It will be interesting to track trade numbers and see what’s happening besides an inevitable swapping of container traffic from Seattle to Tacoma. More clarity may come in the battle over coal exports. The housing inventory in the city and most desirable suburbs is very tight, which should keep driving prices higher.
How much will federal austerity hurt? The Congressional Budget Office predicted the across-the-board sequester cuts would kill 750,000 jobs, but the damage is mostly a drip so far. With pressure from better-off flying folks, Congress showed it could move smartly to fix at least one area, funding for the Federal Aviation Administration. Otherwise, we’re just getting started with the needless destruction. Next up, the loss of billions in grants to states. And the deficit is falling anyway, thanks to an improving economy.
These are my top issues for the summer. I’m sure readers have their own. Please leave them in the comments field.
And Don’t Miss: The only thing Amazon has to fear is Amazon itself | Wired
Today’s Econ Haiku:
China gobbles Smithfield Foods
‘We will bury you’