Brexit

Britain’s decision to leave the European Union, of which it was a member for more than 40 years, has ushered in great volatility and uncertainty in global financial markets.

The British pound fell in value from a high point for the year, just before the referendum vote, to a three-decade low the day after.

The International Monetary Fund expects global GDP to fall about one-half of one percent as a result of this decision.

Some countries, like the U.S., are not expected to be hurt badly by Brexit. But Great Britain could face a recession and Europe also faces great uncertainty in its wake.

The catalyst for this uncertainty is trade agreements. Great Britain will have to establish new trade agreements with the European Union and its other trading partners going forward.

Job Growth

The May labor report, which came out in early June, was surprisingly weak. It showed payroll gains of just 38,000 – well below the trend of recent months.

These monthly reports go haywire from time to time. We will have to wait for future reports to determine whether May’s numbers were an abnormality or part of a larger trend.

Unemployment

The most recent unemployment report contained better news, with a new cycle low of 4.7 percent. This continues a downward trend that we have seen since unemployment hit a peak of 10 percent in 2009.

Consumption

Consumption is the good news of this quarter. Households are spending money, which is important since consumption accounts for 70 percent of U.S. economic growth.

There has been an enormous rebound in consumption in the second quarter. It will probably drive economic growth in the second quarter to between 2 and 3 percent.

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