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John Lonski, Moody’s Capital Markets chief economist, breaks down today’s slowing GDP data.
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Given a double dose of bad economic news growth slowed to one point 5% in the second quarter in consumer sentiment fell to its lowest point in the year.
Is it is bad enough to -- another round of easing let's ask John Lonsky chief economist.
At Moody's capital market.
I'm John you know -- down today's did a little bit because if you look at the trend in GDP.
It's a real slowing we're looking at four point 1% in the fourth quarter.
2% in the first quarter and now all the way down to one point 5%.
In the second quarter here what do you think caused the slide.
Well I think a lot of it of course has to do -- the overhang from the financial crisis so the fact that with the collapse of home prices.
-- consumers.
Suddenly found that.
Homeowner's equity was badly depleted.
No it one time around 2005.
Homeowner's equity -- at thirteen point five trillion dollars at last look.
It was just above six trillion dollar.
Is that -- does that explain the drop off since the end of 2011 I mean I'm just talking about what has -- new in the past six months but slowed us down further.
Well okay I would -- on top of that -- look fiscal stimulus perhaps provided some relief several years ago unfortunately.
Washington perhaps became coo aggressive with regulatory activity.
As it relates to health care among other factors.
And that hasn't rained in the economic recovery and blindly and this is something that.
Washington is helpless to do anything about the United States is getting older that huge baby boom cold -- Of the population is moving into which sixties.
And quite frankly.
You're not gonna get the tank at the same type of spending growth that you had in the past.
If this a very influential.
Segment.
Of the US population.
Moves closer to retirement.
Let me wanna sisters just for a second your -- were watching the market really rally just the past few minutes here it's accelerated.
The Dow right now is up 206 points for almost.
Look at that we're at thirteen 1094.
Right now there is some comments coming out of Europe.
Mario Draghi saying that his proposal may include bond buying rate cuts.
Does that it do you think that found do you think this'll really need the action.
Out of the ECB and do you think that this will help or are we setting the market up for disappointment.
They can only help -- who knows how long this whatever it takes to rally may last.
But the ECB is now doing what they should have done perhaps a couple of years ago the ECB is are we Ben Bernanke's play book.
And I think that it could prove to be very effective over time it stabilizing Europe keep your -- however.
On the ten year government bond yield so Italy and Spain -- they've come down considerably.
From their recent -- Other recent -- five and a half percent to ten year Italian government bond yield and that.
Six and a half percent Spanish government bond yield.
-- he could break under 4%.
If investors are going to have more confidence.
In the long term outlook for the Euro zone so there's a lot of bond buying ahead.
-- ECB.
Yeah -- and that's what I -- one of the things the market is reacting to right now do you think that the Fed piles on.
Well perhaps the Fed does -- need to with the US equity market continues to rally if we have a further narrowing of credit spreads however in the -- that that financial markets to the United States all -- And if news from the employment front and consumer spending -- continue to disappoint.
The Fed may have no choice but to implement quantitative easing part three.
Alright John Lonsky thanks so much for coming -- we appreciate your time thank you so much.
And again we're looking at a market right now firmly -- that we have been out of.
