The US Federal Reserve and the American Chemistry Council (ACC) have joined the blog in expressing concern about the outlook for the US economy. And as the chart above of the US S&P 500 shows, financial markets have continued to weaken since the blog's advice on 8 May to "sell in May and go away".
The latest minutes from the Fed's monthly meeting show it worries that the economy may take up to 6 years to fully recover:
"Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants' interpretation of the Federal Reserve's dual objectives; most expected the convergence process to take no more than five to six years."
It also highlighted the real risk of deflation emerging:
"Some participants judged the risks to the outlook for inflation as tilted to the downside, particularly in the near term, in light of the large amount of resource slack already prevailing in the economy, the significant downside risks to the outlook for real activity, and the possibility that inflation expectations could begin to decline in response to low actual inflation. A few participants cited some risk of deflation."
As Al Greenwood notes in ICIS news, this week's data also showed that "US capacity utilisation for manufacturing fell to 71.4% in June, down from 71.7% in May. From 1972-2009, the average was 79.2%."
The American Chemistry Council has also raised a yellow warning banner in its latest weekly report. Chief Economist Kevin Swift notes:
"The economic reports were generally negative this week. Retail sales, industrial production, trade, and the regional business surveys all disappointed. There was potentially good news, however, in that initial claims for unemployment insurance fell to a two-year low."
"Overseas, the recovery of industrial production appears to be slowing, with the year-earlier comparisons in the Eurozone, China and India, for example, still strongly positive but moderating. This confirms earlier signals emanating from the purchasing manager reports and composite leading indicators. A second half slowdown or soft patch is clearly in order. It's not clear yet if this is a metamorphosis into a double-dip or not. The risks, however, are clearly rising."
The blog would strongly advise Boards to consider developing a Downside Scenario in respect of their Budgets for H2. It hopes, like the ACC, that the economy will maintain H1's improvement. But there are growing signs of renewed economic weakness in all major Regions. Companies without a detailed contingency plan could be badly hit.