Q2 – Economic Perspective 2011

By
Posted on July 7th, 2011

• The financial markets heaved a sigh of relief as the Greek parliament agreed to implement a €28 billion, five-year program of spending cuts, tax increases, and asset sales. European leaders said the measures were a condition for receipt of the next slice of existing aid before key bond payments in July. Despite differences over whether and how to let bondholders such as banks suffer losses on Greek debt, the country’s European colleagues also said Greece would likely receive a new aid package.

• U.S. economic growth continued, but at a much slower pace. The Bureau of Economic Analysis said gross domestic product (GDP) rose by 1.9% compared to the previous quarter’s 3.1%.

• Consumer inflation over the last year hit 3.6%, though the Bureau of Labor Statistics said volatile food and energy costs were responsible for more than half of that. However, oil prices fell back to roughly $90 a barrel, helped by the release of some of the world’s strategic reserves in the wake of ongoing conflict in oil-rich Libya.

• The nation maxed out its credit card as it went over the current $14.3 trillion debt ceiling in May. Treasury officials warned that accounting measures could postpone the day of reckoning until August 2, but that after that date the Treasury will face the question of which bills go unpaid. As the clock kept ticking, congressional leaders argued over whether spending cuts, tax increases, or some combination of the two would be required before raising the limit on how much the Treasury can borrow to pay existing obligations.

• The Federal Reserve’s bond-buying program, nicknamed QE2, came to an end on schedule. Fed Chairman Ben Bernanke said the Fed will continue to reinvest the proceeds of existing holdings, and that those efforts will end before the Fed raises interest rates. It also forecast slower economic growth (2.7%-2.9%) for the rest of the year, but said some of the causes of the sluggishness should be temporary.

• Unemployment rose slightly to just over 9% during the quarter, consumers were slower to spend, housing continued to struggle, and retail sales were hurt by supply-chain problems in the auto industry caused by the spring’s Japanese disasters.

Source: Broadridge