Tonight, our time, two events will tell us a lot about the future direction of the US and global economies.
The first is the release of the second estimate for second quarter economic growth in the US with the confident expectation that the 2.4% annual first call released a month ago, will be chopped to a range of 1.2% -1.5% at best.
The second will come a few hours later and will see US Federal Reserve chairman Ben Bernanke make a major speech to a meeting of global central banks at Jackson Hole in the US state of Wyoming.
This is an annual conference and brings together the heads and senior officials from the world’s major central banks to discuss the state of the global economy and the outlook.
Since the Fed downgraded its growth outlook two weeks ago, and then a spate of data releases showed housing slumping, demand sliding, investment turning down, retail sales spluttering, exports slowing and no improvement in the outlook for employment, the belief is that the economy is slowing a lot faster than previously thought, and already could be in negative territory.
Just as Mr Bernanke produced the term "green shoots" that came to characterise the start of the recovery in the second quarter of 2009, his comment earlier this month that the economic outlook was "unusually uncertain" has come to capture the current mood and gloom.
Mr Bernanke is likely to repeat his early concerns about the uncertain prospects for the world’s biggest economy but is not expected to offer much guidance on whether the Fed will do more to keep the recovery going, or to soften the pace of the current slide.
But it won’t be just the Fed with gloomy stories to tell. Japan will be just as pessimistic as the high yen adds to the deflationary pressures on the economy and pushes the economy further towards the edge.
The slowing pace of export growth for the past five months, weakening imports, rising unemployment and that intense deflation, have crippled the Japanese economy.
Judging by comments from Tokyo, a dip into negative growth is fully expected this current quarter, if not in the final estimate for the second quarter.
Europe is confronted by buoyant Germany and its 2% plus quarter on quarter growth and the struggling periphery, lead by Ireland (downgraded again this week), Greece, Spain and Italy.
France is getting gloomier about 2011, as are other countries. Italy is facing political unrest as the Berulsconi Government crumbles, Ireland’s debt pressures are sending the cost of funds for the smaller, indented countries of the eurozone higher and pushing Germany’s yields down to record lows (in a replay of what we are seeing in the US, Japan and the UK).
In the next month or so, the new UK Government will produce all the gory details of where the savage spending cuts will be applied, how many jobs will go and the impact on growth.
That will test the confidence about 2011 and 2012 like nothing else and make for a gloomy winter.
In the US on Wednesday saw Chicago Fed head Charles Evans warned that the risks of a double-dip recession in the US have risen in the last six months.
While not saying this was likely, he said high unemployment and a fractured housing sector are making the recovery a fragile one.
"A double dip is not the most likely outcome but I am concerned about how strong the recovery will be," Evans was quoted as saying.
His comments came a day after the Wall Street Journal revealed that the last meeting of the Fed’s Open Markets Committee saw a lot of disagreement about whether the central bank should do any more to help the economy than what it had already done.
As it turned out, all the Fed said after the last meeting was that it will buy US Government bonds to ensure its balance sheet doesn’t start shrinking (which would mean a gradual tightening in monetary policy).
American analysts and economists are expecting Mr Bernanke to reveal more on the Fed’s strategy tonight, especially after the 8.30 am (US East Coast Time) release of the second GDP estimate.
Certainly the news from the US in the past couple of weeks will mean that Friday’s double hit of the second estimate for second quarter GDP growth and a major speech by Fed chairman Ben Bernanke to open the Jackson Hole conference, means that Australia’s story will be noticed, envied, but ignored because the fears are now of a looming slump.
The first estimate of US second quarter growth was 2.4%, US economists now have their new estimates around 1.2% to 1.5% (these are annual figures), or around 0.3% to 0.4% quarter on quarter.
The latest unemployment benefit figures showed a fall last week from the previous week when they jumped to over 500,000. This latest fiogure was 471,000, still too high for an economy said to be in recovery.
The US new housing sales figures were rotten, down to a record low of an annual rate of just 276,000, with June restated to just 315,000.
The July rate is around double Australia’s current rate of new home building, and yet the US economy is around 14 times larger than Australia’s.
But the current rate in the US, along with the rotten slump in sales of existing (pre-loved) homes could intuitively be the bottom the market is searching for.
It’s hard to see more months like the last three for the US housing sector, which is now firmly entrenched in a deep depression and won’t escape for some time.
In fact discounting for the impact of the home tax credit (which finally ended in April), it’s hard to escape the conclusion that the US new
