All is well in the world of economics today!

Europe has agreed on a plan to solve both the most immediate debt crises and to boost the European bailout fund.  Greece will take a 50% ‘haircut’, meaning that bondholders will get 50 cents on the dollar, which will help Greece’s immediate situation.  Boosting the bailout fund means fewer worries over potential future insolvencies.

 In the US, GDP rose 2.5%, and would have risen at a rate of 3.6% except for slow inventory growth.  With a growing economy, inventory growth will not lag for too long.  This means that if we can keep the underlying fundamentals at their current levels, then GDP growth is likely to accelerate.  In terms of the underlying fundamentals, the initial unemployment claims came in at 402,000, seasonally adjusted.  This is a neutral number.  On a not-seasonally adjusted basis claims were 34,000 fewer than they were a year ago, which is mild progress.  Better progress would be a decrease of 50,000+ from a year ago or a seasonally adjusted number in the 375-385K range.  With a slow holiday shopping season anticipated and therefore limited seasonal hiring, I expect that the seasonality adjustment factors will be pretty tough and that we won’t see exciting unemployment claims numbers before January.  Until then, keep your eye on both the seasonally adjusted and unadjusted unemployment numbers.

Markets reflected that all is well for a day.  The Dow closed up 2.9%, NASDAQ up 3.3% and the Russell 2000 up 5.2%.

7/17/2012

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