With the Stock Market falling for a fourth week in a row, Wall Street has begun to worry that the lack of confidence has set off a spiral fear that could push prices even lower, causing people and businesses to pull back investment, thus tipping the economy into a new recession.
“I’m nervous that fear will lead companies to stop hiring and people to stop spending”– Jim Paulsen, chief investment strategist of Wells Capital Management.
Rather than only reflecting fears for financial stability, the recent downward spiral illustrates that the stock market is starting to feed economic fear, not only an asset for people to demonstrate their uncertainty. The reasons for the recent plunge are multifaceted. It started last month when the government said the economy had only gown .8%, the slowest since the supposed “Great Recession” which had (again: supposedly) ended in June 2009. Also, home sales fall a significant percent this past week, with 16% of sales being cancelled last minute, 4 times the rate in May. A major factor in the sellout was a survey by the Federal Reserve that said manufacturing has slowed in the mid-Atlantic states by the most in more than two years. Clearly, the problems are racking up and the odds are definitely against the American people. Sadly, the hopes for recovery are not only slight, but with political brinkmanship still evident and the housing market only getting worse, the people are becoming desperate.
“People are really motivated by larger economic trends. It’s all about if you feel confident enough to buy a home right now.” – Brian Fine, loan manager at Mortgage Master in Rockville, Md.
Well, a larger economic trend is emerging and it is not one to make the public confident. The news from Europe has only gotten worse. The economy of Germany, which has been the European Union’s greatest source of strength, has slowed considerably. The outlook for the mass media, stating that is “no solution in sight” for the Euro-zone crisis, combined with the US markets plunge on Thursday had European Markets beginning in the red on Friday. London’s FTSE lost 2.5%, Germany’s DAX lost 3.4% and France’s CAC 40 fell 2.9%, which only added to the 4% to 5% losses the majority of them had experienced on the previous day. So far, the EU has responded to the debt problems in Greece, Portugal and Ireland by throwing money at the problems. Merkel’s and Sarkozy’s meeting, analyzed in EU: Sarkozy-Merkel Meeting, put forth policies to counter the growing problems but many analysts are skeptical, stating that the policies are far from stringent enough. And with such news being sensationalized across the globe, the public has only continued its downward spiral of chronic selling, unemployment, and little to no investment into the economy. Evidently, there seems to be a negative feedback loop which circulated around the world causing every piece of pessimistic financial news to create havoc across the seas and at home.
Furthermore, this week will be a stressful and symbolic of the future financial trend for the American nation and for the global economy as well. On Tuesday, new home sales for July will be released. The housing market has always been a source for economic recovery, that is, only when the housing market is booming. Investors will further be pressured on Thursday due to the weekly report on how many people have joined the unemployment lines. This will all be followed up on Friday when the government will give its second estimate on how fast the economy has grown from April through June. So saying, Morgan and Stanley has stated the both America and Europe are hovering close to a recession. Surprising considering that many people have already considered the news around the world to be a clear illustration of an already existing recession. So, if it can get worse, meaning if it truly does become a recession, then it can also become better.
Although unemployment remains high, 9.1%, there are signs that the economy is still growing, just not at a great pace. Moreover, retail sales grew in July at the fastest pace since March and employers have added around 117,000 jobs last month. Though a modest gain, it is far better than the hundreds of thousand of jobs lost every month during the “Great Recession”.