Unsettled markets, falling energy demand sparks fear of double-dip

From Reuters, via Fox Business:

World markets reacted predictably to yesterday’s dismal new on the US jobless data and the perceived weakness of the US economy.

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NEW YORK (Reuters) - Fear gripped world markets on Thursday, pummeling stocks and driving the dollar to a near 15-year low against the yen as the latest economic data spurred new worries of a deepening slowdown in the United States that could reverberate around the world.

Investors fled for the safety of U.S. Treasuries and gold, sending the yield on the 30-year Treasury bond to its lowest level since April 2009 and driving gold to a seven-week high in New York.

New U.S. claims for first-time jobless benefits scaled a nine-month high last week, while the Federal Reserve Bank of Philadelphia reported an unexpected contraction in manufacturing in the Mid-Atlantic region.

"The U.S. macroeconomic numbers once again increased doubts regarding the strengths of the U.S. economy in the second half and raised concerns that the economy might be weakening more than previously anticipated," said Tammo Greetfeld, equity strategist at UniCredit in Munich.

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In a separate story, also from Reuters via Fox Business, oil prices have slipped to a six-week low, as US crude inventories rose to levels not seen since the 1990’s:

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U.S. crude prices for September fell 73 cents to $73.70 a barrel by 1220 GMT on contract expiry day, continuing a two-session drop.

Oil prices slid to a six-week low of $73.83 a barrel on Wednesday after data from the Energy Information Administration showed U.S. oil stocks rose to 1.130 billion barrels in the previous week -- the highest level in at least 20 years.

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Crude oil prices and inventory stocks are leading indicators of economic activity.  They presaged the meltdown in 2008-09, and the outlook for the third quarter of 2010 is rather dim.  While it’s unlikely that the US economy will slip back into recession this year, the first and second quarters of 2011 don’t look very rosy, as the crude oil stocks and futures contracts being evaluated today reflect actual demand and consumption three to six months out.  If energy prices are falling now, it means businesses expect slower activity going forward in the short term.

There is no reason to panic (yet). Most economists are still forecasting weak growth through the next calendar year.  But the recovery from the Great Recession has been historically tepid and sluggish, so any nasty surprises between now and January could well push GDP into negative growth territory.

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