The Second-Half Slowdown Has Begun

- "The economic data have weakened noticeably over the past few weeks. This is
consistent with our long-standing forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This weakness was visible in both the ISM manufacturing index and the employment report for June—the two monthly releases that receive the maximum importance score of 5 in our US-MAP rating scale."
- "As the inventory cycle ends, we expect the ISM index to fall from a recent peak of just over 60 to around 50. The drop in June to 56.2 was probably the first significant step on this path."
- "The employment report also points to a slowdown in the manufacturing sector. While manufacturing payrolls logged another (small) increase, the manufacturing workweek fell by ½ hour, which is in the 4th percentile of month-to-month changes in a data series that stretches back seven decades."
- "More broadly, the employment report was substantially weaker than suggested by the roughly “in line with consensus” headlines. This was most visible in the household survey. The employment/population ratio showed the second consecutive drop to 58.5% and is now halfway back to the 25- year low of 58.2% seen last December."
- "For the most part, we view the recent weakening in the data as a confirmation of our view that growth is indeed slowing significantly in the second half. However, there is some downside risk to our forecast of a gradual reacceleration in 2011 (to about 3% on a Q4/Q4 basis). The main reason for this is not so much the economic indicators themselves, but the shift in the fiscal policy climate to increasing emphasis on consolidation at a time when the data would be calling for more stimulus."
GoldmanSachs US Economics Analyst 20100702

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