SOCGEN: Investors Are Worried About A Potential 'Sinister' Development In The Economy

Michala Marcusen, economist at SocGen, passes along the number one thing that clients are worried about right now.

IS THE US SOFT PATCH SOMETHING MORE SINISTER?

Marcusen answers:

Fears that recent weakness in the US data is signalling something more sinister than a soft patch linked to fiscal tightening were eased by Friday’s encouraging employment report; not only did April see a gain of 165K, but its came with net revision worth +114K over the previous two month. Steeper-than-expected cuts in defence spending also suggest that the sequester may be more front-loaded than we had initially discounted. A further positive looking ahead is the recent drop in gasoline prices, which may help offset some of the headwinds from fiscal restraint.

The last point about the drop in gasoline prices is a story that’s not gotten enough attention.

The year over year drop in gas prices is one of the most severe since the crisis.

FREDThere’s a lot of talk about the Fed offsetting the fiscal drag. But falling gas prices (along with rising wages) is also a big story.

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