One of the world’s largest investment banks, Morgan Stanley is warning that both the United States and Europe are on the precipice of a new recession and Wall Street is taking because of recession fears.
Morgan Stanley analysts cut their outlook for global economic growth in a note last night and added the warning that both the U.S. and Europe are “hovering dangerously close to a recession.”
The analysts lowered their global economic growth in 2011 to 3.9%, down from a previous estimate of 4.2%. They now see growth for 2012 at 3.8%, down from 4.5%.
In the developed markets, the analysts expect growth of 1.5% this year and next, down from a previous estimate of 1.9% and 2.4% respectively.
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Making matters worse the Morgan Stanley news came before today’s economic news which was all bad.
- The closely-watched guide to manufacturing known as the Philadelphia Index activity in the mid-Atlantic states slumped to its lowest level since March 2009.The bottom fell out of the Philadelphia Fed’s manufacturing index in August, and the details of the survey are even worse, with 47% of respondents saying new orders fell, and more than a third saying shipments decreased.
- Sales in the heavily depressed US housing market fell unexpectedly(bad news is always unexpected), despite mortgage rates hitting their lowest level in 50 years. Sales of existing homes fell 1.5% in July, falling to an eight-month low. The National Association of Realtors ticks off a number of reasons why the housing market could get better — including record-low mortgage rates — but with so many homeowners underwater on their mortgage, it doesn’t look to be happening soon.
- Unemployment claims also rose sharply. The number of people claiming unemployment benefit ticked up by 9,000 last week, to a seasonally adjusted 408,000, according to the Department of Labor.
- The consumer price index, tracking the rate of inflation at the retail level, increased 0.5% in July, the biggest gain since March, the Labor Department said. Usually when there are indications of inflation, the fed reacts by raising interest rates to tighten the money supply, but if the fed did that now it would slow down the economy even further. The fed is between a rock and a hard place, normally with the economy heading toward recession they would losen the money supply. The bottom line is the fed has two actions either one may kill the patient.
There is one bright side President Obama says another recssion is unlikely
“I don’t think we’re in danger of another recession but we are in danger of not having a recovery that’s fast enough to deal with what is a genuine unemployment crisis for a whole lot of folks out there and that’s why we need to be doing more,” he said during an interview scheduled for broadcast on the network’s “Sunday Morning” program.