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June 2014 Economic Overview

US Economy

The U.S. economy was battered even more than first suspected by the harsh winter, actually shrinking from January through March, 0.1 percent, the first decline in three years. The downturn is temporary. The weakening reflected slower stockpiling by businesses, a cutback in business investment and a wider trade deficit. Once the effects of the severe winter are over, we can expect a robust rebound. Indeed, there have been recent signs pointing toward a strengthening economy such as a decline in unemployment applications, and improving consumer spending. The April-June GDP growth could be a healthy 3.8 percent fueled mainly by pent up demand.

If growth does pick up, that should promote stronger hiring and help drive the unemployment rate down further. In May, employers added 288,000 jobs in the biggest hiring surge in two years. That helped push the unemployment rate down to 6.3 percent, its lowest point since 2008.

The economy is facing fewer hurdles this year than last year, when government spending cuts and higher taxes trimmed growth by an estimated 1.5 percentage points. A government budget truce has also lifted, at least through the rest of this year, much of the uncertainty that had been weighing on the economy over the potential threats of further government shutdowns or market-rattling battles over raising the government’s borrowing limit.

U.S. Businesses Are Being Destroyed Faster Than They’re Being Created

Eurozone

Euroskeptics celebrated across the continent on Monday, from Britain to France and beyond, over their unmatched success in the European Parliament election. Now they are keen to put up internal borders again, keep foreigners out of their labor markets, abolish the common euro currency and let their nations go it alone in a globalized world.

The 28 European Union leaders meeting in Tuesday’s postelection summit have a different task: making sure the surge of anti-EU and anti-establishment parties that claimed almost 30 percent of the EU’s 751-seat legislature doesn’t dislodge the 64-year project of closer cooperation between European nations.

Economic data point to improvement by the month. Business had a solid start to the second quarter of the year with activity picking up at its fastest pace in almost three years, surveys show and borrowing costs keep falling. But there is a cautionary note. Tocqueville contended that the best time for a revolution was when things were improving, not deteriorating. Portugal, Spain and Ireland have made clean exits from their bailouts. Greece and Cyprus remain under care. The recovery is gaining moderate strength. However markets are in danger of reverting back to Euro crisis time. Greece pays the same rate as Germany, in the bond market!

Economic problems are far from over. Debt levels have risen sharply, growth is sluggish and unemployment remains high. Pre-election doldrums have set in. Stagflation, reform paralysis, and backlash in southern Europe heighten concerns of a rise in populism. Eurosceptic parties are leading the polls. Europe’s leaders still face testing times.

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