In his Jackson Hole speech, Fed Chairman Bernanke offered little to those who hoped for new guidance about monetary policy. Instead, he provided an upbeat assessment of U.S. long-term economic prospects, with one major caveat. He warned that U.S. fiscal policy must be placed on a sustainable path that ensures that 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 stimulus. One hint that the Fed’s internal debate about monetary policy remains very active 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, 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. 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. 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. The July Advance Report on Durable Goods showed total new orders jumping by 4.0 percent after declining by 1.3 percent in June. Motor vehicle and parts orders gained 11.5 percent for the month and nondefense aircraft orders, always volatile, gained 43.4 percent. Excluding transportation equipment, new orders increased by 0.7 percent, pushed up by a 10.3 percent increase in new orders for primary metals. New home sales for July dipped below 300,000 to hit a 298,000 annual rate, down by 0.7 percent for the month. No new news there. Buyer caution increased as consumer sentiment took a dive in August.