Posts Tagged ‘recession’
The disconnect between the stock market and the U.S.economy continues to grow, as the key stock indices run way ahead of reality.
The fundamental reasons behind the rise in today’s key stock indices are missing. For a real rally to happen, there has to be rising demand in the U.S. economy, consumers must be confident to spend, and businesses should see their sales rising. None of this is taking place.
Industrial production in the U.S. economy decreased 0.5% in April—marking the second decline since the beginning of the year. (Source: Federal Reserve, May 15, 2013.)
Similarly, manufacturing in the U.S. economy is also portraying a bleak picture of demand. Manufacturing output in the U.S. economy declined 0.4% in April after continuing its slump from March, when it decreased by 0.3%.
In the first quarter, a large number of companies on the key stock indices, like the S&P 500, were able to show better-than-expected corporate earnings. But in hindsight, they showed one troubling phenomenon: as the majority of the companies on the S&P 500 have already reported their corporate earnings, only 48% of them were able to beat revenue expectations. (Source: FactSet, May 10, 2013.)
Looking ahead, the picture for the key stock indices in the U.S. economy doesn’t look bright. For example, as of May 10, out of all the companies on the S&P 500 that have issued their corporate earnings guidance, more than 79% of them have issued a negative outlook. The estimated earnings growth rate for companies on the S&P 500 stands at 1.6%, compared to 4.5% near the end of March.
On top of all these troubles … Read More
In the first quarter of 2013, the eurozone continued to witness an economic contraction. The gross domestic product (GDP) of the 17-nation region declined 0.2%. This decrease in the GDP marked the sixth straight quarter of economic contraction in the eurozone and the longest since 1995. (Source: Reuters, May 15, 2013.)
The debt-infested countries in the eurozone, such as Greece, Spain, Italy, and Portugal, are already experiencing severe economic contraction; and to say the very least, they have a lot of issues to resolve before they even come close to seeing any economic growth.
What concerns me the most is that the stronger nations in the eurozone are starting to show weakness—the economic slowdown is picking up speed. It could make the economic contraction in the entire region much more severe and could send the eurozone into another downward spiral.
Consider the French economy—the second-biggest economic hub in the eurozone. In the first quarter of 2013, France witnessed an economic contraction—GDP declined 0.2% and France entered a recession. (Source: Bloomberg, May 15, 2013.) For the past few quarters, France’s economy has been witnessing severe pressures, and unemployment in the country continues to be a major problem.
Similarly, Germany—the biggest nation in eurozone by GDP—grew at a dismal pace in the first quarter of 2013, below economists’ estimates. The German Federal Statistical office reported that the German economy grew 0.1% in the first quarter, and the revised calculation showed the country experienced an economic contraction in the last quarter of 2012, when its GDP declined by 0.7%. (Source: Destatis, May 15, 2013.) But there are even more troubling … Read More
Economic conditions in the U.S. economy may be improving slightly, but the global economy is on the verge of witnessing an economic slowdown—and a possible recession. Key indicators are flashing red signals and warning of trouble ahead for the global economy.
In these pages, I have written rigorously about how the main economic hubs of the global economy are witnessing an economic slowdown, with the eurozone and Japan in an outright recession. The Chinese economy is slowing down, and emerging market economies are now starting to show concerns, as their troubles are quickly brewing.
This week, the central bank of South Korea cut its interest rates to 2.5% from 2.75%. The main reason for this cut in rates was deteriorating exports. In March, industrial output for the country declined 2.6% from February—the biggest decline in a year.
Similarly, central banks from countries like India, Taiwan, and the Philippines may do the same and cut interest rates to boost their exports and economies.
Emerging market economies export to developed nations in the global economy. If these emerging markets experience an economic slowdown, it will mean that demand is weak in the developed countries.
Other key indicators, like industrial metal prices, are reaffirming the economic slowdown.
Consider the price of aluminum, a metal used in many different technologies. On the London Metal Exchange (LME), aluminum traded for about $2,100 per ton at the beginning of 2013. Fast-forward to today, and the price has declined almost 12% to around $1,850 per ton. (Source: London Metal Exchange web site, last accessed May 9, 2013.)
According to the Bureau of Labor Statistics (BLS), there were 3.8 million jobs opening in the U.S. jobs market in the month of March, unchanged from February and lower than March 2012 (Source: Bureau of Labor Statistics, May 7, 2013.) The hires rate, which is the number of people hired relative to those already working, declined in March in the durable goods manufacturing, nondurable goods manufacturing, arts, entertainment, and recreation sectors.
There are still almost 12 million individuals in the U.S. economy who are jobless, and a significant portion of them have been unemployed for more than six months.
So far this year, 783,000 jobs have been added to the U.S. jobs market. While this number sounds good, in the same period last year, there were almost 900,000 jobs added to the jobs market. In 2011, it was 774,000 jobs. (Source: Wall Street Journal, May 8, 2013.)
In addition to all this, there are threats to the jobs market ahead, such as sequestration—$85.0 billion in spending cut from the U.S. federal government. These cuts are expected to hit the jobs market in the summer. The Congressional Budget Office (CBO) estimated that the cuts in government spending will result in a reduction of 750,000 jobs. (Source: CNBC, May 1, 2013.)
I am looking at the recent declining number of jobless claims as a positive sign, but the jobs market is still in a dismal state. Until the jobs market really picks up, my negative opinion on the U.S. economy won’t change.
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