U.S. Continues Its Slow, Jobless Recovery
The U.S. economy showed signs of improvement during August, but the recovery is progressing more slowly than many economists and investors had hoped. The slower-than-usual growth is due largely to stubborn unemployment, but gains in corporate profit have helped offset some of that slowdown, particularly by boosting the stock market over the past few months.
Employment figures showed an uptick, but remain below the levels needed for sustainable net job growth. In early July, the U.S. generated a better-than-expected 163,000 jobs, led by unexpected gains in the manufacturing and business services sectors. However, the official unemployment rate hit 8.3%, up from an 8.2% reading during the previous month, as the U.S. population expanded.
Despite the stagnant employment situation, some leading indicators showed promising signs of improvement. Consumer sentiment edged up to a better-than-expected 73.6, which could indicate that consumers are ready to spend more. Moreover, a composite index of ten economic leading indicators showed a 0.4% improvement, compared to a 0.3% contraction in July. But still, the Federal Reserve is far from opposed to using additional easing to help the economy.
SEE: 7 Ways To Position Yourself For Recovery
European Yields Fall, but Uncertainty Remains
Caterpillar Inc. CEO Doug Oberhelman perhaps said it best when he noted in mid-August that the global economic outlook is more uncertain now than it was in late 2008 due to the politics involved in the eurozone crisis. Despite numerous efforts to devise a unified policy, the region has fallen short of a comprehensive package that would effectively calm the financial markets.
While the euro has been edging higher throughout the month, many economists question the eurozone's resolve in implementing necessary structural reforms. Moody's, one of the three largest ratings agencies in the world noted, "the correction [in the eurozone] is at best only halfway complete, depending on the country in question, and could take several years."
Bond yields have also improved throughout the region, after speculation arose that the ECB was exploring the idea of a cap on government bond yields. Spanish bond yields fell to 6.22% by mid-August, while Italian and Irish bond yields also moved sharply lower. The expectation of bond buying had also halved the yields on two-year Spanish bonds since July.
SEE: How Eurozone Debt Benefits Americans
Japan's Economy Shows Signs of Slowing
Japan had been a relatively safe bet for investors, after reporting several quarters of robust growth, driven by reconstruction spending. However, the growth proved difficult to maintain, as the country's second-quarter GDP fell to an annualized 1.4% compared to economist forecasts of around 2.3% and a 5.5% annualized reading during the first quarter.
The Bank of Japan now forecasts a 2.2% expansion in GDP this business year and a 1.7% increase in the fiscal year beginning April 2013. Economics Minister Motohisa Furukawa noted that the country's economy continues to recover, but is feeling the effects of the European debt crisis and slowing overseas growth, adding that the government will consider its options.
Britain Stays the Course for Now
Britain remains in a precarious situation after experiencing the deepest recession since the 1920s and the slowest recovery and budget deficit on record. While the bond markets haven't lost faith in the country and deflation remains under control, there's concern with escalating problems in the eurozone and a lack of confidence in George Osborne's policies.
During its last meeting, the Bank of England opted to keep interest rates at a record low and keep its quantitative easing cash stimulus program set at $584 billion. Rising inflation and negative GDP output could force the central bank to increase its QE program by 50 billion pounds, according to some economists, which could pressure the pound.
SEE: The Importance Of Inflation And GDP
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