Macro Pulse June 2010 -- Waiting with Finger in the Wind

Executive Summary

Time will tell whether the downward revision of 1Q2010 growth in U.S. GDP from 3.2 to 3.0 percent is just a temporary setback or a harbinger of a more protracted slowdown. There is plenty of evidence to support either viewpoint. We still forecast some growth through the rest of 2010, but additional data may cause a change in expectations.

Private-sector employment continues to drag on the economy. Non-farm payrolls expanded in May, but 95 percent of those jobs were temporary positions related to the 2010 Census; further, three-fourths of new private-sector jobs were created by temporary-help agencies. The bottom line is that the U.S. economy may have actually lost 11,000 permanent jobs in May.

Manufacturing continues to be a bright spot in private domestic investment, but construction spending – especially the residential component, now that the federal homebuyer tax credit has expired – is unlikely to add substantially to GDP growth for quite some time. Single-family starts and sales, and total completions all jumped by double-digit percentages in April, and the inventory of new homes fell to a four-decade low in absolute terms. However, permits of both single- and multi-family units retreated by double-digit percentages relative to March.

The volume of world trade expanded in March. Closer to home, U.S. exports and imports both rose in March; but the trade deficit widened mainly because of petroleum imports. The dollar’s dramatic appreciation against the loonie and euro in May is likely to dampen U.S. exports in the near-term.

The monthly average price of West Texas Intermediate crude oil fell in May, to $73.83 per barrel – a drop of $10.65 (-12.6 percent). The oil price retreat was not a result of just dollar strength – but rather a combination of concerns over sovereign debt, prospects for flat or falling consumption in the developed world, and rising OPEC production – evidenced by the fact that the euro price also dropped despite that currency’s depreciation against the greenback.

Click here to read the entire June 2010 Macro Pulse.