THE RAIN IN SPAIN…

• Sharp loss of momentum…

• ..but, a positive surprise on the July payrolls may indicate some bounce

• The eurozone financial crisis continues to be the major downside risk…

• … but deep policy divisions prevent a quick solution to the problem

• No clear trend in the economy, expected to continue to perform below potential

• The Fed and the European central Bank (ECB) stand ready to act

• The markets holding at high levels despite the onslaught of bad news

Economic growth slowdown: The Bureau of Economic Analysis (BEA, US Department of Commerce) released its first estimate of 2Q12 growth. The economy grew at an anemic 1.5% annualized rate, its slowest pace since 3Q11. The growth number for 1Q12 was revised upwards from 1.9% to 2.0%. A faltering consumer was the main reason for the slowdown in growth, while government continued to be a drag. The BEA also revised past GDP numbers all the way back to 1Q09. The revisions indicate that the 2008-09 recession was not as severe as earlier reported (GDP fell by 4.7% between Dec 2007 and June 2009, not 5.1% as estimated earlier), but also that the recovery was slower (GDP rose by only 2.4% in 2010, down from a reported 3%).