After another week of market volatility, worldwide anxieties about the economy have again become the focus. Continued worries about Europe and concern about a global slowdown underlie this most-recent volatility. With most major stock markets down significantly for the week, many are asking if we are headed for another recession.
Ironically, last week's market sell-off followed a Federal Reserve Board action that was widely anticipated. As expected, the Federal Open Market Committee announced that it will rebalance its portfolio to purchase more long-term securities in an effort to bring down long-term interest rates. By "twisting" the yield curve, the Committee hopes to spur more spending and investment. Moreover, by re-investing the proceeds in mortgage-backed securities instead of U.S. Treasuries, the Fed is explicitly trying to give a boost to the housing market; it hopes that lower interest rates will encourage more Americans to purchase a new home or to refinance their existing mortgages.
World markets, however, have begun to doubt whether "Operation Twist" or central bank efforts in Europe and elsewhere will be enough to forestall a slowing economy. Interest rates are already exceptionally low in the United States, questioning whether further reductions will have the desired impacts that policymakers might desire. This is particularly true in an environment where businesses and consumers remain uncertain about future growth. The Fed itself helped to feed this anxiousness with the following sentence in its statement:
Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets.
While it may be an overreading of this sentence (particularly since the one preceding it suggests that the Fed anticipates a "pickup in the pace of recovery over the coming quarters"), it was enough to convince equity market traders that the Fed was deeply worried about a recession. My initial reading of the Fed's statement was that it was well-nuanced. The Federal Reserve acknowledged the headwinds facing the economy, but it also cited areas where it is improving. It is clear that this Federal Reserve Board – despite three dissentions and continued political pressure to do otherwise – is determined to do what it can to spur economic activity.
Aside from the turbulence in world markets, not many economic numbers came out last week. Those released primarily focused on the still-depressed housing market. Housing starts fell to 571,000 homes (at the annual rate), led by a decline in multi-family housing units. This sector has been unable to gain much traction, as evidenced not just by the housing starts figures but also by the National Association of Home Builders, whose index has been virtually flat all year. On the positive side, existing home sales rose last month despite financial pressures for many would-be homebuyers and disruptions caused by Hurricane Irene.
This week, we will learn more about manufacturing activity around the country. Regional reports from Chicago, Dallas, Kansas City and Richmond will give us a sense of whether production levels have continued to slow down or whether we are beginning to see a rebound. Likewise, the Census Bureau will detail durable goods orders for August, which have been a renewed bright spot, particularly with gains in the transportation sector. Finally, we will get a sense from consumers about their current economic sentiment with two surveys on optimism; future growth will depend on consumers (and businesses) becoming more confident.
Chad Moutray
Chief Economist
National Association of Manufacturers
HOUSE PASSES BILL TO IMPEDE AIR POLLUTION RULES
AP
According to an AP report, the House "took another swipe at the government's ability to control air pollution" Friday, "passing a bill that would delay or scrap rules to reduce mercury and other harmful air emissions. The 249-169 vote sent the legislation to the Senate, where Environment and Public Works Committee Chairman Barbara Boxer vowed to defeat it." Boxer said after the vote, "Let me be clear: This is a train we must stop. I will do everything I can to block the rollbacks being pushed by House Republicans and polluters."
TRAINING OF STUDENTS IN SKILLED JOBS MUST ALIGN WITH THE NEEDS OF BUSINESS
Courier News (NJ)
Patricia Moran, director of The Institute at Middlesex County College, wrote, "A study commissioned by the National Association of Manufacturers and the Manufacturing Institute says 'About 90 percent of manufacturers reported a moderate to severe shortage of qualified, skilled production employees.'" Moran wrote, "Why does this shortage exist? Unfortunately, inadequate training and negative stereotypes are the primary reasons." Initially, the author wrote, "there needs to be a positive promotion of skilled trades work that would encourage students with the natural aptitude to further develop those skills. Additionally, the training they receive must be aligned with the current demands of the industry."
WASHINGTON WATCH: HOUSE PASSES MATHESON BILL REQUIRING ANALYSIS OF EPA REGS
The State Journal
The House of Representatives approved legislation sponsored by Rep. Jim Matheson that would establish an interagency committee to study the economic impact of upcoming Environmental Protection Agency rules affecting energy and manufacturing. {read more}
ENABLING A MORE GLOBAL MANUFACTURER
Today in Manufacturing
Open communications is allowing global manufacturers to establish and maintain facilities all over the world with fewer, but more efficient, employees... continue
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