Friday’s disappointing US non-farm payrolls data showed no jobs were created in the US in August, sending stocks sharply lower as fears over a recession intensified. Even though the data may be perceived to have strengthened a bit the hypothetical case of recession but in fact only a significant drop in retail sales and consumption could take the US back into recession.
Consumer spending is the mainstay of U.S. domestic demand. It would be hard to envisage the U.S. economy contracting, if private consumption were still growing healthily. Noting the strength of the July consumption data which showed spending rising by 0.8 percent, much of the growth was down to a rebound in demand for durable goods. Only if households’ aggregate spending turns decisively lower will there be incontrovertible evidence of recession. Apart from Friday's weak jobs data, there, however, is strength in other areas of the economy that do not point to a downswing. The Federal Reserve’s measure of industrial production rose in each of the three months up to July. This contrasts with the immediate pre-recession performance of this index in 2007, when output never regained the peak it had reached in September of that year. And, this September bulls seem to have other ammo. There are plenty of catalysts during this month that could "surprise to the upside" including the President’s speech about jobs scheduled for September 8th or the regularly scheduled September Fed meeting. We may go lower early in the month, but there is every reason for the rally to resume after that. '+'
