IMF:
US plunge from fiscal cliff would hit global economy hard
Political
infighting is threatening US growth, IMF report finds, with
potentially disastrous consequences for world economy
2
August, 2012
Political
infighting over the "fiscal cliff" threatens to wipe out
the US's fragile recovery with "very bad" consequences for
the rest of the world, a senior International Monetary Fund economist
warned Thursday.
Updating
its annual report on the US economy, the IMF said the recovery
remained "tepid", and risks to that recovery had
intensified, "including from the worsening of the euro area debt
crisis as well as the uncertainty over domestic fiscal plans."
The
IMF is particularly concerned about falling off the fiscal cliff.
Unless a deal is struck by 31 December, Bush-era tax breaks will be
dropped and a series of draconian spending cuts imposed. The tax
rises and cuts to areas including defense could wipe 3.9% off the
US's growth rate next year, according to the congressional budget
office.
In
a conference call Gian Maria Milesi-Ferretti, who heads the IMF's US
team, said arguments over the so-called "fiscal cliff" had
the potential to wipe out growth in the US next year and push the
country back into recession. "That would be a very bad outcome
for the US economy and the rest of the world," he said.
The
IMF is predicting 2.25% growth in US gross domestic product next
year. "If you go from two and quarters to zero or negative,
that's a sizeable shock," said Milesi-Ferretti. The fiscal cliff
"can be avoided and it should be avoided," he said.
The
IMF published its annual checkup of the US economy, known as the
Article IV consultation, last month. The latest update comes after it
has been assessed by member countries including China and the UK and
follows a set of dispiriting reports on jobs growth and manufacturing
in the US.
On
Wednesday the US Federal Reserve said it had noted further weakening
in the US and was prepared to act but stopped short of doing so. The
move disappointed US investors and led to a selloff in US markets.
The
IMF's directors said the Fed had room to further ease monetary policy
but a number of directors noted "the effectiveness of additional
monetary easing could be limited in the prevailing very low interest
rate environment."
Europe's
woes would continue to weigh on the US recovery, said
Milesi-Ferretti, slowing exports and strengthening the dollar to
levels that make US goods less attractive.
Milesi-Ferretti
sounded an optimistic note for the medium term and said rising demand
for housing would eventually lead to a recovery in the US housing
market.
The
US is now building around 700,000 new homes a year and will need to
build 1.5m a year in the near future, he said. But he estimated
recovery could take three to five years.
Seasonal And Birth Death Adjustments Add 429,000 Statistical "Jobs"
2
August, 2012
Happy
by the headline establishment survey print of 133,245 which says that
the US "added" 163,000 jobs in July from 133,082 last
month? Consider this: the number was based on a non
seasonally adjusted July
number of 132,868. This
was a 1.248 million drop from the June print.
So how did the smoothing work out to make a real plunge into an
"adjusted" rise? Simple:
the BLS "added" 377K jobs for seasonal purposes.
This was the largest seasonal addition in the past decade for a July
NFP print in the past decade, possibly ever, as the first chart below
shows. But wait, there's more: the Birth Death adjustment, which adds
to the NSA Print to get to the final number, was
+52k.
How does this compare to July 2011? It is about 1000% higher: the
last B/D adjustment was a tiny +5K! In other words, of the 163,000
jobs "added", 429,000 was based on purely statistical
fudging. Doesn't matter - the flashing red headline is good enough
for the algos.
Seasonal
Adjustment:
Birth
Death:
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