Recent developments have highlighted why some expect the road to recovery to be a bumpy and tough slog. During the month of May, equities plunged nearly 10 percent, the 10-year treasury yield fell 41 basis points, and oil prices tumbled down $12 to roughly $74 per barrel. Many of the fluctuations …
Recent developments have highlighted why some expect the road to recovery to be a bumpy and tough slog. During the month of May, equities plunged nearly 10 percent, the 10-year treasury yield fell 41 basis points, and oil prices tumbled down $12 to roughly $74 per barrel. Many of the fluctuations have been linked in the press to euro-zone-debt strife and worries over the strength of the global recovery. [2010-06-04]
Domestically, there have been some downside surprises as well. Notably, while headline nonfarm payrolls jumped up 431,000 in May, that was almost entirely on a 411,000 boost from temporary Census employment. Private payrolls inched up just 41,000 in May, compared to an average gain of 146,000 over the prior three months. Also, while the much watched unemployment rate edged down from 9.9 percent to 9.7 percent, a less noisy barometer of labor market conditions—the employment-to-population ratio—retrenched in May, slipping back 0.2 percentage point to 58.7 percent. Also to the downside, first-quarter real GDP was revised down by 0.2 percentage point to an annualized gain of 3.0 percent, surprising expectations of an upward adjustment. Real consumption expenditures, which increased at an annualized rate of 3.5 percent in the first quarter, started off the second quarter flat.
This is not to say that all indicators are pointing toward a bleaker future. Total construction spending surged in April, rising 2.7 percent, its largest monthly gain since August 2000. Manufacturing output has been increasing rapidly, jumping up 1.0 percent in three of the last four months, pushing up its 12-month growth rate to 6.0 percent (its highest level since April 2000). Also, all the major housing series have posted sizeable gains lately, though it is unclear whether that trend will continue after the first-time home-buyer tax credit has expired.
Measures of retail prices are still pointing toward a disinflationary process, as the core CPI (excluding food and energy) is up just 0.9 percent over the past 12 months, its slowest growth rate since the early 1960’s. Moreover, measures of underlying inflation trends produced by the Federal Reserve Bank of Cleveland, the median CPI and 16 percent trimmed-mean CPI—at a 12-month growth rate of 0.5 percent and 0.9 percent, respectively—are at series lows. Looking forward, high unemployment rates and plummeting unit labor costs (down 4.2 percent on a year-over-year basis) are suggestive of a continued “subdued” inflation trend.
All told, the data still point toward a burgeoning recovery, though that path may be full of dips and potholes.