When Enough is Not Good Enough

March 22, 2012

After celebrating last week, investors are seeking cover in this one.  The catalyst has been various soft data not confined to one region of the world.

It is normal and not the exception for economic data to wax and wane, so a batch of softer numbers in earlier decades would have probably been taken in stride.  What sets the present era apart is that even the good numbers remain unremarkable in historical terms.  There’s insufficient cushion to fall back on that old cliche that a single data point doesn’t make a trend.

This week’s mix of bad news contains some truly troubling developments. 

  • If China is in fact in a harder landing than foreseen, that removes the pivotal stabilizer that shepherded the global economy through 2007-9 and made such a Great Recession rather than a Great Depression.
  • Europe isn’t even treading water.  It had seemed that activity in the euro zone and Britain might have stabilized after a patch of negative growth, but the former’s PMI releases and the latter’s retail sales numbers were each clearly recessionary.
  • Oil prices are stubbornly holding above $100 per barrel, and long-term interest rates have risen sharply this month.

And some of the good news is only so if viewed from a short-term perspective.  A prime example is the U.S. labor market, whose jobless rate has fallen from 10.0% at peak to 8.3% at present.  New jobless insurance claims of 345K and continuing claims of 3.352 million announced today are cyclical lows.  New claims averaged 355K per week between February 19 and March 17, 14.3% or 59K less than in the four weeks from last September 4 to October 1.  Non-farm payroll jobs increased 2.437 million between February 2011 and February 2012.  But at 132.697 million, employment is only 2.165 million or 1.7% above its end-1999 level.  If jobs instead had expanded at the pace of the 1980s and 1990s, which coincidentally were identical, the current jobs level would be 162.720 million or 30 million greater than it is. Growth in jobs that appears to be enough from a short-term perspective just isn’t good enough juxtaposed against the historical trend.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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