Towards a Global Economic Slowdown: Stock Market Slide, Declining GDP, Rising Unemployment
by Mike Whitney
June 5, 2012
“Every major part of the global economy is slowing, and slowing rapidly….Right now, we seem to be in a synchronized global slowdown, and that is very worrisome.”
– Mohamed El-Erian, Pimco
Growing troubles in the eurozone, a slowdown in China and a jobs report that was weaker than the most-pessimistic forecast, sent stocks plunging on Friday. The Dow Jones Industrial Average lost 275 points on the day while the S&P 500 and the NASDAQ followed the DJIA into the red. All the gains of 2012 have now been erased leaving all the major indices in negative territory.
The global selloff was preceded on Thursday by a revision of first quarter GDP which was slashed from 2.2 percent to 1.9 percent. The US economy is neither growing nor adding jobs. The signs of stagnation–which have spread from manufacturing, to consumer confidence, to GDP, and now to jobs– has ended all talk of a “recovery” and dampened Obama’s prospects for re-election in November.
Payrolls increased by just 69,000 in May, far below the 150,000 that analysts had expected. The unemployment rate rose to 8.2 percent from 8.1 percent while revised estimates show that fewer jobs were created in the last 3 months than originally stated. The grim report suggests that the Obama economic recovery has run out of steam just as many economists had predicted. Obama’s unwillingness to follow the advice of top economics advisor, Christina Romer–who recommended a $1.8 trillion stimulus package, instead of the $787 billion that the administration settled on–has probably cost him the election. Obama’s future depends on the condition of the economy, and the economy stinks.
In Europe, troubles in Spain and Greece have touched-off a bank run that’s pushed yields on risk-free assets, like US Treasuries and German bund, to record lows. The German 2-year bund (Schatz) dipped into negative territory on Friday while yields on the benchmark 10-year Treasury declined to 1.44 percent. The yield on the Swiss 10-year has plunged to an astonishing 0.48% is “the lowest ever recorded anywhere.”