Ominous Signs for the Economy

Not good, but with 10% unemployment the new norm does anyone believe the recession was over?

(Bloomberg)The percentage of corporate bonds considered in distress is at the highest in six months, a sign debt investors expect the economy to slow and defaults to rise.The number of speculative-grade companies worldwide with yields at least 10 percentage points more than government bonds climbed to 399 this month, or 16.7 percent of the total, the highest share since December, according to Bank of America Merrill Lynch index data. The ratio compares with 9.2 percent on April 30, which was the lowest since November 2007.

Junk bond sales slumped to a 15-month low in June amid concern government efforts to control spiraling budget deficits will hamper global growth and drive up borrowing costs for the neediest borrowers. The 2010 default rate in the U.S. may jump as high as 6 percent by year-end from 1.3 percent currently, according to analysts at Goldman Sachs Group Inc.“The default driver will be a reversal of easy refinancing conditions,” said Charles Himmelberg, the chief credit strategist at Goldman Sachs in New York.

JPMorgan Chase & Co. analysts led by high-yield credit strategist Peter Acciavatti wrote June 25 that the rate will be 2 percent in 2010. The views are diverging as investors weigh the effects of Europe’s sovereign debt crisis and on mounting concern the U.S. economy may tip back into recession.

Even more troubling, it appears the the job market lost ground in June with the end of census workers and continued weakness in the private sector:

The U.S. unemployment rate is forecast to rise to 9.8 percent in June from May's rate of 9.7 percent, according to economists polled by Reuters.Non-farm payrolls are forecast to shed 110,000 jobs in June, according to the U.S. Labor Department's report. Although much of that drop is due to the government laying off half of its temporary Census workers, another weak reading for private-sector hiring will disappoint investors.

"The truth is that without job creation, we're in for a tougher time, and I mean real job creation, not temporary job creation, not part-time job creation -- real job creation," said Kenneth Polcari, a floor trader at the New York Stock Exchange with Icap Corporates.

And the damage of Obamacare or the BP debacle hasn't even hit yet!