Tuesday, February 9, 2010

Global market turmoil hints that U.S. recovery may founder

No, there is no recovery, and there will be no recovery, because they don't want a recovery. The more you falsely believe there's a recovery, the more money they'll make before the bottom drops out.

    McClatchy -

    Conflicting U.S. jobs data and mounting concerns about debt defaults abroad that threaten global economic growth triggered a worldwide wave of stock-market volatility Friday amid fears that the improving U.S. economy could unravel.

    A mixed jobs report from the Labor Department, including a revision that showed that 2009 job losses were far greater than thought, called into question the strength of the U.S. recovery.

    In Europe, the European Union's inability to chart a path forward for debt-ridden Greece, Ireland and Spain also led investors to fear a return to the credit freeze of 2008 and scurry for havens. Investors on Friday fled countries from Portugal to Argentina on concerns that their widening deficits could signal future debt defaults.

    "Greece's debt problems and the contagion effects to other southern European countries or beyond are real and are likely to stay with us for some time," Barclays Capital Research, a division of the big British bank, warned in a research note.

    The potential of new global financial woes piled on top of U.S. employment worries. Shortly after opening, the Dow Jones Industrial Average sank below 10,000, at one point down 170 points. It swung 120 points in the final hour of trading, however, as investors repositioned in case of a weekend solution in Europe, perhaps involving a rescue by the International Monetary Fund.

    Friday's global stock-market turmoil could continue next week. The downturn in recent weeks has doused investors and hit the retirement plans of ordinary Americans alike, eroding last year's wealth gains.

    The Dow finished up 10.05 points to 10012.23. The S&P 500 and Nasdaq rallied to close up, respectively, 3.08 points to 1066.19 and 15.69 points to 2141.12.

    Friday's volatile trading followed a 267-point drop on the Dow a day earlier, and it began minutes after the Labor Department released the jobs report, which found an unexpected drop in the unemployment rate from 10 percent to 9.7 percent. Analysts had expected a slight uptick.

    "These numbers, while positive, are a cause for hope but not celebration, because far too many of our neighbors and friends and family are still out of work," President Barack Obama said during a meeting with small business owners in Lanham, Md. "We can't be satisfied when another 20,000 have joined their ranks and millions more Americans are underemployed, picking up what work they can."

    Still, optimists pointed to the household survey, which questions workers to determine the jobless rate. That survey found that more people reported new jobs, 541,000, than reported jobs lost, 430,000. The work force participation rate, which reflects people working or looking for work, also rose slightly as the jobless rate dipped.

    "Despite the obvious disappointment of the failure to show a gain in employment in January, we judge there is more good news than bad news in this report," a research note from forecaster RDQ Economics said.

    If the jobs report confounded investors Friday, problems in the European Union scared them. The problem isn't so much that a nation defaults on its sovereign debt — the bonds that individual countries issue — but that such a default could trigger a chain reaction of global panic similar to what happened after the bankruptcy of U.S. investment giant Lehman Brothers in September 2008.

    That scenario would add to the hurt on American shores, since it would slow the global economy, bring more bank losses and hurt U.S. exports.

    Even without a panic, weaker European economies such as Spain's and Portugal's already face a credit crisis as they're hit with higher borrowing costs because investors consider them riskier bets.

    An economic slowdown in Europe would hurt Main Street America because exports have been one of the few drivers of economic growth, and Europe is a chief buyer of everything from farm products to expensive U.S. technology.

    If Greece and other nations default on their debts, that also could unleash a new wave of contagion, and countries from Iceland to Argentina could find themselves unable to make good on their commitments to bondholders. This would bring even more losses at global financial institutions just as they're beginning to claw back from the brink of collapse.

    Alan Levenson, the chief economist of investment-management firm T. Rowe Price, warned in a note to investors that renewed financial market turbulence "could cause a pullback in business-decision making that would interrupt the economy's forward progress."

    If the future is uncertain, today's economic problems seem to be improving gradually.

    January's jobs report found that improvements in hiring continued, but the data conflicted. The Labor Department revised upward the November estimate of a small net gain of 4,000 jobs to show that 64,000 jobs had been added, but statisticians also revised December's estimate, saying that 150,000 jobs were lost that month, not 64,000 as they'd reported previously.

    "The job market remains very tough, but headed in the right direction," said Mark Zandi, the chief economist for forecaster Moody's Economy.com in West Chester, Pa. "Job growth should resume this spring."

    Zandi warned against cheering Friday's drop in the jobless rate.

    "I don't think the decline in the unemployment rate has much meaning. It appears to be more of a statistical decline than a real one," he said, suggesting that statistical revisions to the estimated size of the work force explain much of the drop, the second consecutive decline in the jobless rate.

    Many experts think the rate will rise again as more people who'd given up looking for jobs try to get back into the work force as the economy thaws.

    "I think unemployment rates are going to keep going up for a while. Even if job growth returns, it's not going to outstrip the magnitude" of past job losses, said Harry Holzer, a former Labor Department chief economist who's a researcher at the Urban Institute, a centrist policy-research organization.

    An annual revision to last year's numbers, published in Friday's data, found that 600,000 more workers lost their jobs last year than first estimated. The revision means that 8.4 million people have lost their jobs since the recession began in December 2007.

    "This number, however, understates the size of the gap in the labor market by failing to take into account the fact that simply to keep up with population growth, the labor market should have added around 2.6 million jobs since December 2007. This means the labor market is now roughly 11 million jobs below what would restore the pre-recession unemployment rate," said Heidi Shierholz, a labor economist at the Economic Policy Institute, a liberal policy-research group.

    In an analysis of Friday's jobs report, she added that in order to fully fill in the 11 million-job gap in the labor market within three years — by January 2013 — employment would have to increase by more than 400,000 jobs every month between now and then.

    That's a daunting task, made even tougher if the problems in Europe lead to slower global economic growth.

    Despite the conflicting data, some details of Friday's jobs report were positive. The hard-hit manufacturing sector posted January gains of 11,000. That confirms data showing that factory orders for all sorts of goods and materials are up.

    Other positive signs include a boost of 52,000 jobs in temporary employment — a harbinger of future full-time hiring — and 42,000 new positions in retailing. Federal government employment grew by 33,000 jobs.

    However, the construction sector has shed jobs faster and more deeply than all other sectors, and it pulled down January's employment numbers. Another 75,000 construction jobs were lost in January, and analysts think that much of that was weather-related. More than half of those lost construction jobs were specialty contractors in non-residential building.

    January by the numbers:

    • Construction, down 75,000
    • Manufacturing, up 11,000
    • Retail, up 42,000
    • Government, up 33,000
    • Financial services, down 16,000
    • Professional and business services, up 44,000
    • Health Care, up 17,100
    • Transportation, warehousing, down 19,000
    • Leisure and hospitality, down 14,000

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