Posted on 08/16/2010 5:49:08 PM PDT by unclebankster
Fear of renewed recession in America is overblown; so is some of the optimism in the euro area
SELDOM does the United States look at Europe with economic envy. The past few weeks, however, have been one of those rare phases. Concern about America’s stumbling recovery has been rising, just as anxieties about the euro area’s economy have faded. The dollar is the weakling among rich-world currencies . But Americans should take a little heart: it is too soon to despair about their economy. And Europeans should show a little caution: it is too soon to be sure that theirs is firmly back on its feet.
Some forecasters believe that America’s disappointing GDP growth in the second quarter, 2.4% at an annualised rate, could be the start of a slide towards a second recession. One worry is jobs, or the lack of them. American business created only 71,000 in July, too few to match the growth in the population of those of working age and far too few to shorten the queue of unemployed noticeably. Unemployment is stuck at 9.5%, even though corporate America is flush with cash. Companies are still unhelpfully shy of hiring, preferring to squeeze yet more output from fewer people.
Contrast America’s woe with Europe’s renewed hope. Figures published after The Economist went to press were expected to show that the euro area’s economy grew faster than America’s in the second quarter, thanks largely to supercharged Germany. Booming sales to fast-growing emerging markets—notably Brazil, China and India—have brought German industry its strongest quarter in decades. The newly affluent in those countries are rushing to buy Audis and Mercedes, as well as luxury goods from other European countries. German firms that had mothballed factories when global demand for durable goods plummeted have returned to capacity far sooner than they had dared hope. Germany’s unemployment rate, 7.6%, is a bit lower than at the start of the financial crisis.
Beware of short memories
Yet it is only a matter of months ago that fortunes were reversed. Then America seemed to be pulling strongly and Europe was the laggard. The dollar was riding high as investors fled from the euro area’s debt crisis. This underlines the most crucial point for policymakers: America’s and Europe’s economic fortunes are as tightly bound as ever. For all the talk of competition, politicians in Brussels and Frankfurt should be praying for growth in America—just as their peers in Washington, DC, should be pleased to hear about China’s nouveaux riches ordering German cars and French claret.
That said, both Europe and America seem to be suffering from delusions—of strength and weakness respectively. In Europe it is far too early to celebrate recovery on at least two counts. First, Germany apart, the euro area remains weak. Spain, whose economy is barely growing and where the jobless rate is 20%, would love to have America’s problems. Second, Germany relies on exports, not spending at home: the home market is one of the few places where sales of Mercedes cars have fallen this year. So its economic fortunes remain closely tied to the rest of the world—including one of its biggest markets, America.
How real are the risks of a double dip in the United States? The recovery has lost momentum in part because shops and warehouses are fuller, so that the initial boost to demand from restocking is fading. The housing bust still casts a shadow. Households must save to work off excess debts. Firms fearful of weak consumer spending are cautious about investing. Bank credit is scarce. All this stands in the way of a full-blooded recovery. But a slide into a second recession would require firms to cut back again on stocks, capital spending and jobs. The cash buffer corporate America has built up in case of harder times makes a fresh shock of that kind unlikely.
Yet even without a double dip, America could plainly be doing better. Its firms might be more willing to spend their cash if they had a clearer sign from Mr Obama how he intends eventually to close their country’s fiscal deficit (and the extra taxes that might entail). But in the short term eyes are fixed on the Federal Reserve. On August 10th the central bank acknowledged that the recovery had slackened and said it would reinvest the proceeds from the maturing mortgage securities it owns in government bonds. This was a small shift back towards “quantitative easing”—but less than the bears wanted.
Anxiety about deflation remains justified: any sign of it would require much bolder measures from the central bank. However, for the moment the Fed has sent the right signal: concern but not panic. Apart from anything else, it is not clear that yet more monetary stimulus would have created many new jobs. The relatively high level of job vacancies in America seems consistent with far lower unemployment. Some firms have complained that the available workers do not have the skills that they want. Unemployment, sadly, may thus have deep roots, with more people this time remaining out of work for longer. It will be a hard slog. But on the current evidence don’t expect America’s recovery to grind to a halt.
Maybe workers don't want to work for shitty companies that pay peanuts and have artificial ceilings on advancement.Which is quite amusing to me with unemployment rate at 9.5%(it higher than that).
Where in the constitution does it say international bankers owe people a job?/S
the staff of The Economist must have found a stash of weed that would make Woody Harrelson green with envy.
So let's recount what has happened in the intervening interval. Europe has repudiated and rejected communism and all the misery it always causes. America's president and congress have forced socialism and neo-communism down the throats of an unwilling populace. Might there be a correlation here?
IMO a pretty precise correlation.
Spot On.
That’s kinda what I was thinking.The writer took a couple bong hits than typed out some propaganda/B.S.
“The relatively high level of job vacancies in America seems consistent with far lower unemployment”
This is pure BS/Spin.
Companies list job openings they don’t really have to:
a) to cover their weak financial condition, many are on the brink of closing the doors.
b) keep current employees working hard (could be they will be replaced by someone more qualified willing to work for less)
In reality many, many small businesses are carrying key employees, hoping that business will pick up. Truth is that higher taxes, and expiring 179 deductions will make the final quarter of 2010 a blood bath.
Every pension and retirement owed to public employees in each state facing bankruptcy is just such an example of govt. waste/largess that is unsustainable.
The battle taking place as we watch and suffer is between the private sector (losing) and the public sector (winning). One produces wealth, the other spends it (redistributes it) and produces none.
Worse, taking trillions of dollars out of the private economy and pouring it on public projects (seen roads and school improvements?) and public union employees to maintain employment of said employees is to rob the private sector of cash needed for expansion and growth- not just for the moment- but for some time as taxpayers and businesses must pay these 'loans' back. This is the 'double-f*ck' aspect of 'borrowing' that many Americans don't comprehend.(Print mo money)
A quick boost to the economy could be had immediately if people and businesses stopped paying their quarterlies and took a vacation from taxes owed April 15th. This act alone would put a shot into the arm of the economy like never seen before but would come at the expense of bankrupting state gooberments which, when you think about it, might make some people sad.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.