What’s Worrying Bernanke?

Fed Chairman Bernanke gave a curious and worrying signal in his appearance yesterday before the Joint Economic Committee of Congress.

He said, in the Q&A session that followed his testimony, that the recovery was ‘close to faltering.’

This subtly contradicted what he said in his pre-written statement.

 In that, he noted GDP growth in 1H 2011 averaged less than 1% annualised, but “in the second half of the year seems likely to be more rapid than in the first half.”
 
Perhaps the most important thing to note: Mr. Bernanke talks of a faltering recovery in a fortnight when much of the most recent US data have been more positive than a month ago.
 
Next thing to remember – don’t generalize.
 
Instead, accumulate evidence, whilst keeping an open mind.
 
The next big economic data release – after payrolls coming in a day and a half – will be US 3Q GDP data.
 
Some recent good data which should feed into 3Q GDP:
 

  • Personal consumption figures for July and August point to on-track demand and 1-2% annualised growth in 3Q.
  • Net balance of international trade data for first two months of 3Q are strong
  • Shipments of non-defence capital goods ex-aircraft were higher in July-August vs 2Q

 
 
Perhaps the Fed Chairman’s concern over growth is based on anecdotal reports from the central bank’s contacts in industry?
 
Well, the surest recent industrial data we had were in the September manufacturing ISM.
 
They were promising. But we perhaps should look lower down and note the sub-index for the backlog of orders plunged to 41.5. from 46.0.
 
That was the lowest reading for backlogs since April 2009.
 
We should bear in mind that Mr. Bernanke is probably also focused on potential banking troubles [who isn’t?]
 
In his testimony he referred to sovereign debt problems in Europe as “a significant source of stress in global financial markets.”

ThSM

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