The situation in Europe, particularly in Greece and Spain are getting worse. Greece and Spain announced more austerity measures, including higher taxes and reduced spending (lower wages, pensions, and/or job cuts). The estimates for future budget cuts and increased tax revenues are unlikely to be met however these plans must be presented in order to continue to get the bailout funds. Meanwhile Spanish banks lost another 1.1% of deposits.
The Chinese government announced a plan to bypass bank reserve requirements and interest rates, instead opting for a direct injection of cash into their economy which sent the markets soaring. Don't expect this cash injection to work anymore than similar programs have in Europe in the US. Chinese manufacturing is slowing down and it is beginning to send ripples throughout the world. Cash injections don't make people buy stuff. The demand is just not as high as it was and which is why we are seeing this global slowdown.
The Case/Shiller 20-City Home Price Index rose 1.2% year over year and new home sales also rose albeit at a slower pace. It appears we are seeing a minor uptrend in housing. The fear that the shadow inventory would be released on the market just hasn't happened yet and thus existing supply is decreasing coupled with the continued low rates, those that can buy seem to be doing so. The shadow inventory will hit the market at some point however it is not at this point possibly because of the extended time it takes to foreclose. For now we welcome the positive news.
Durable goods manufacturing ex airplanes (which show big swings) was down about 1.6% when a gain was expected. This soft data confirms the trend we've seen since June where other manufacturing measures have all pointed to slowdown.
Jobless claims fell to 359,000 from a revised 386,000. This number has been higher lately so we'll need to see a few more to confirm a trend. Meanwhile the 2nd quarter GDP (measure of economic growth) which was estimated at 1.7% came in at only 1.3%. This low rate was posted before the manufacturing slowdown really took hold in the 3rd quarter, so when 3rd quarter GDP is estimated at the end of October, expect it to come in weaker or possibly negative.