What the developments today tell us is that there are more risks to the global economic outlook than most of us would prefer. Active efforts by China to tame inflation could lead to slower growth while consumer spending in the U.S. has failed to live up to expectations. The recent increase in price pressures is a problem that most countries around the world are struggling with. China has responded with an RRR hike, the European Central Bank is talking about the possibility of raising interest rates if inflationary pressures are too strong while the U.S. is left standing on the sidelines. If the global economy was performing well, inflation would not be a major problem but central banks could soon find themselves in the tough situation of taming inflation at the expense of growth. The latest U.S. economic reports reflect the ongoing pressures on the U.S. consumer who is highly indebted, out of work and forced to deal with higher prices. Don’t expect next week’s economic reports to make investors feel any better. Manufacturing data could show additional improvements but the housing market has been one of the weakest parts of the U.S. economy and we do not expect any major upside surprises in next week’s housing data.
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