In his widely covered speech two weeks ago, Fed Chairman Bernanke said the anemic U.S. economic recovery seemed to be continuing, but that the Fed was suspicious of the positive employment reports of recent months. His actual words were “the better jobs numbers seem somewhat out of synch with the overall pace of the economic expansion.” Later in his speech he referred to the improvements in the jobs picture in relation to the anemic economic recovery as “a puzzle”.
The Fed’s suspicions seem to have been validated by Friday’s employment report which showed that only 120,000 new jobs were created in March compared to the consensus forecast of another increase of more than 220,000 jobs.
Added to the recent dismal reports from the housing industry indicating the promising housing reports of recent months were also only temporary, the jobs report certainly raises concerns regarding the sustainability of the U.S. economic recovery.
It also throws considerable cold water on hopes that the U.S. economic recovery will offset global slowdowns and prevent a threatening global recession.
The U.S. is just not that kind of economic powerhouse anymore.
Too many U.S. jobs were shipped overseas over the last 10 years, to countries where wages are much lower. That grew the economies of those low-wage countries at the expense of the U.S. economy.
China for example overwhelmed U.S. retail stores with ‘Made in China’ labels. Its economy averaged blistering 10% annual growth over those 10 years.
But over the last couple of years those overheated economies in Asia and other low-wage areas like Brazil, have run into problems, primarily rising inflation. That prompted their governments to try to slow their economies significantly by raising interest rates, and imposing tighter fiscal and monetary policies.
As a result Chinese Premier Wen Jiabao projects China’s growth will slow to 7.5% this year, while a growing number of analysts are concerned it could even overshoot on the downside, into a hard landing in recession. Brazil’s government projects its growth rate, running at 7.5% in 2010, will be cut in half to just 3.8% this year.
Economies in the 17-country euro-zone are sliding into recessions, quite a few already there.
Meanwhile, the U.S., which used to be the powerhouse of global growth, has experienced a ‘lost decade’, the worst for the U.S. economy in modern times, with two recessions since 2000. Even in its recovery from the negative growth of the 2008-2009 ‘Great Recession’, it has averaged only around 2% annual GDP growth, and it’s projected to come in around 2% this year – if the anemic economic recovery manages to continue.
With the dramatic slowdowns in the economies of its global trading partners, U.S. exports will certainly come under further pressure.
But can U.S. consumers come to the rescue?
U.S. consumers have a well-deserved reputation for spending more than they make.
However, in the agony of the 2008-2009 financial melt-down and its aftermath they became worried about their futures and actually began acting like their global counterparts, saving money and paying down debt, buying only what they needed and could afford.
But U.S. consumers also have short memories, previous fears quickly forgotten once there is a glimmer of hope that good times have returned.
So with the return of headlines pointing to the U.S. economic recovery, and an improving jobs picture, U.S. retail sales have been surprising on the upside.
Thomson Reuters reported Friday that retail sales prior to Easter are beating forecasts, with the biggest increases coming from clothing retailers. And that retailers’ profits are increasing as more consumers are willing to pay full price rather than looking for bargains, which had become their main focus in recent years.
Auto-makers reported March sales were up an impressive 15%.
But look behind the numbers.
It was recently reported that Personal Spending increased a surprising 0.8% in January, while Personal Income was up only 0.2%. The U.S. stock market responded positively to the news of the jump in spending, ignoring the report’s more important ratio of spending to income, as a predictor of the ability of consumers to maintain such a level of spending in the future.
And now we have Friday’s jobs report indicating the previous improvement in the jobs picture, like the improvement in the housing industry, were only temporary.
Meanwhile, global stock markets recognise the economic problems in their own countries, with many having fallen back into bear markets.
And while the U.S. has been preening over its stock market’s impressive continuing rally in March, with the S&P 500 up 3% for the month, the FT World Markets Index EX U.S. declined 3% in March.
Those are not good signs for continuing consumer and investor confidence in the U.S., nor for the U.S. economic recovery, nor for the already ‘long in the tooth’ stock market rally.