There is an ever-increasing list of concerns for investors and this ongoing lack of growth is moving inexorably closer to the top of it. The scale of the slowdown is also cause for concern with the largest economies, developed and developing, struggling.
The US has just reported zero change in its employment figures when 70,000 new jobs were expected; it also revised last month’s non-farm payroll figures downwards to 85,000 new people in employment instead of 117,000.
David Miller, a partner at Cheviot Asset Management, commented: “The figures will heighten political tensions and reinforce the view of markets that lack of growth is the problem. Markets and voters will expect support from the government and the Fed.”
The US also grew at just 1.3% during the second quarter.
Another cause for concern is the developed world falling further behind emerging countries, although China’s purchasing managers’ index (PMI) is only just in positive territory, at 50.9 (anything above 50 signals growth rather than contraction) from a 28-month low of 50.7 in July.
The G7 GDP growth figures have recently been lowered for this year and next, with 4% little more than a pipedream. Italian (47) and French (49.1) PMI numbers are as low as they were in September 2009; Germany is only just in positive territory (50.9); the global manufacturing PMI figure is 50.1, having fallen for the sixth consecutive month, and is lower than it was in the first half of 2008.
Miller suggests that the poor data figures will be seen as further justification for a new bout of quantitative easing though there is an argument that says these weak figures show that the current bouts haven’t exactly encouraged growth.
In the US, QE will probably be discussed formally on 21 September at the next FOMC (Federal Open Market Committee) meeting.
Inflation will come down next year when base effect kicks in; interest rates will remain low for the next 12 months at least; and while growth is low, it is still growth and there is a degree of certainty that growth will remain low for some time – it should not come as a surprise.
There is enough money in the economy already so more QE is not necessary. Bernanke barely even alluded to it in his Jackson Hole speech a week ago – what is needed in the UK is the encouragement for investors to take risks and get more actively involved in running their portfolios.
