Weekly Economic Report
This week brought another episode of market recession angst on soft data from the global manufacturing and nonmanufacturing PMIs, only to be reversed on Friday with the release of the US monthly payroll report. We believe the market’s trepidations reveal far more about investors’ concerns surrounding corporate valuation than fear of a recession in the underlying economy – at least in the US. Most analysts continue to expect roughly trend growth in the US, but a deepening manufacturing recession abroad. The weaker view on global growth suggests both that it will be even harder for multinational firms to generate earnings growth – and they haven’t produced much recently – and that it may be devalued as foreign currencies weaken relative to the dollar. Investors also worry that they can’t expect much more help from lower interest rates, as a trend US economy limits the downside for US short term rates and the rest of the world is already beyond the zero-lower bound. Just back from a week in Europe, we can report that any expectations of an imminent round of fiscal stimulus from those with some capacity – Germany, in particular – to us appears unlikely. Bottom line, the real problem for financial markets is that those with some ability to inject either monetary or fiscal stimulus are unlikely to do so and organic growth is harder to come by.