RPT-GLOBAL ECONOMY WEEKAHEAD-Clouds over Jackson Hole

By Pedro Nicolaci da Costa

WASHINGTON, Aug 22 (BestGrowthStock) – For a country that has
earned a reputation for no longer producing very much, the fate
of the world economy is still curiously dependent on the
fortunes of U.S. workers.

A renewed spike in U.S. unemployment could spell trouble
for the global economic recovery and spark a fresh push into
unconventional monetary easing from the Federal Reserve,
affecting everything from a frothy yen to fast-growing emerging
markets.

The Fed’s yearly pow-wow at Jackson Hole, Wyoming this week
will take place against the backdrop of U.S. gross domestic
product revisions likely to show the world’s largest economy
grew much more slowly in the second quarter than originally
reported.

But more important than where the economy was then, figures
pointing more directly at where things stand now — and what
will likely transpire in coming months — hold the key to
business sentiment.

On that front, neither reports on housing or weekly jobless
claims are expected to provide too much comfort in the week
ahead. Applications for unemployment benefits last week jumped
back up to half a million last week, their highest in nine
months.

“I don’t think we’ll get a double-dip recession but the
rate of growth will be so slow that it will feel like a
recession,” said Malcolm Polley, chief investment officer at
Stewart Capital Advisors in Indiana, Pennsylvania.

Forecasts for U.S. second quarter GDP growth have been
revised down to 1.5 percent, the Commerce Department’s first
estimate of 2.4 percent. “You need at least 2.0 percent GDP
growth to get job growth and we’re going be below that,” said
Polley.

Worries about weakening U.S. economic activity and
dangerously low inflation will be highlighted this week by data
on Japanese consumer prices that will show the country is still
mired in a deflationary rut.

These and other omens of disinflation, the first hints of
the dreaded threat of deflation, will dominate discussions at
the Federal Reserve’s yearly policy pow-wow in Jackson Hole,
Wyoming.

TENSE ENCOUNTER

Central bankers from around the world will gather at the
picturesque mountain resort to discuss the looming
macroeconomic challenges.

St. Louis Fed President James Bullard, who is worried the
United States could go the way of Japan, said on Thursday that
the U.S. central bank should be prepared to push borrowing
costs even lower by purchasing more U.S. Treasury bonds if
consumer prices appear set to fall.

Of course, concerns about falling prices in developed
nations will have to coexist uncomfortably with fears of
overheating in places like emerging Asia and Latin America.

Peru, for instance, reported last week its economy grew at
a dizzying 11.9 percent clip in the year to June, prompting its
central bank president, Julio Velarde, to express concern about
investor euphoria toward the Andean nation.

If only the developed world had the luxury of such
troubles. Instead, Europe continues to struggle with the
prospect that measures at calming investor fears over high debt
levels may ultimate impede growth.

Germany’s solid performance has taken some investors by
surprise, and yet there are doubts about whether it can be
sustained. The closely watched Ifo sentiment survey for August,
due out Wednesday, is forecast to show a moderate decline to
105.7 from 106.2, according to a Reuters poll, with a measure
of expectations also seen moving lower.

MARKETS ON EDGE

With the economic outlook, in Fed Chairman Ben Bernanke’s
words, “unusually uncertain,” financial markets appeared to be
hanging by a thread, with a renewed aversion to risk pushing
U.S. stocks (Read more about the stock market today. ) back into the red for the year and driving Treasury
bond yields to 17-month lows.

“The jobs issue will continue to hang over the stock
market, as it hangs over the rest of the nation,” said Fred
Dickson, chief market strategist at the Davidson Companies in
Lake Oswego, Oregon.

The Fed’s decision last week to begin using proceeds from
maturing mortgage bonds in its portfolio to buy more
Treasuries, and speculation about the possibility of another
burst of outright purchases, has driven the Japanese yen to
15-year highs, prompting fears that the country’s already meek
recovery will sputter.

Much of the debate at Jackson Hole will center over what to
do next. Many analysts fear the Fed may be running out of
bullets, not because further asset purchases won’t lower rates,
but because low rates may not be the ideal remedy for what some
say is simply a fundamental lack of consumer demand.

RPT-GLOBAL ECONOMY WEEKAHEAD-Clouds over Jackson Hole