Bernanke Jackson Hole Speech, Q2 GDP Revision, UI Claims

Bernanke Mum on Policy Options, Q2 GDP Bogged Down, Strikers Blamed for Claims Gains

  • In his speech at Jackson Hole today, Fed Chairman Bernanke offered no new initiatives.
  • Significantly, the upcoming FOMC meeting for Sept. 20 has been extended to 2 days.
  • Real GDP growth for 2011Q2 was revised down from 1.3 percent to 1.0 percent.
  • Initial Claims for Unemployment Insurance increased by 5,000 for the week ending August 20.
  • Striking Verizon communications workers have added 21,000 to initial claims since mid-August.

Speaking today at the Annual Jackson Hole Economic Policy Symposium, Fed Chairman Bernanke offered little to those who hoped for guidance about monetary policy. Instead, most of Bernanke’s speech focused on the long-term prospects for the U.S. economy. He was upbeat in his assessment but with one major caveat. He warned that U.S. fiscal policy must be placed on a sustainable path that ensures the debt relative to national income is at least stable and, preferably, declining over time. Bernanke added nothing new to the discussion of near-term policy options, saying that the Fed has a range of (unspecified) tools that could be used to provide additional monetary stimulus. One hint that the debate about near-term policy remains very active within the Fed is that September’s FOMC meeting, previously scheduled for one day, has now been extended to two days.

The second estimate of 2011Q2 real GDP growth shows a downward revision from the previously estimated 1.3 percent growth rate, now down to a more anemic 1.0 percent. The second estimate for Q2 shows slightly stronger nonresidential fixed investment, but weaker inventories and weaker exports. With Q2 real GDP growth down to 1.0 percent and Q1 at 0.4 percent, the U.S. economy was uncomfortably close to recession in the first half of 2011. Real consumer spending was nearly flat in Q2, growing at just a 0.4 percent annualized rate. I still expect to see slightly stronger positive real GDP growth in the current third quarter, in the neighborhood of +2.0 percent, aided by increased auto production.  But even a doubling of the annualized growth rate to +2.0 percent in Q3 can hardly be called a vigorous rebound. The significant deterioration of consumer confidence through August, likely accompanied by tepid job growth, bodes ill for an economy already back on its heels. Without a more confident consumer, supported by ongoing moderate job growth, this economy fails to generate significant lift. August will likely be the fourth consecutive month of sub-par job growth. I expect to see a net of about 75,000 jobs added. Without significant gains in job creation soon, visible in September and October, Q4 could easily stall. Labor market indicators remain soft with initial claims for unemployment insurance for the week ending August 20 up by 5,000 to a level of 417,000. The data is muddied by the Verizon strike which has added 21,000 to initial claims.

Market Reaction: Equity markets opened with losses but have since recovered. Treasury yields are down. Gold is up to $1788 an ounce. Oil is down to $83.65/barrel. The dollar is giving ground against the yen and the euro.

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