Monday, October 31, 2011

ECONOMY - Sigh of Relief on Wall Street, but Not in the Job Market

"Wall Street Completes Best Month in More Than a Decade" (Part-1) PBS Newshour Transcript 10/28/2011

JUDY WOODRUFF (Newshour): World markets settled back to normal today, as jubilation over Europe's debt deal subsided some.

On Wall Street, trading was unusually quiet. The Dow Jones industrial average gained 22 points to close at 12,231. The NASDAQ fell a point to close at 2,737. But it was still the market's best month in a long time, and it came amid tentative indications of economic progress.

The markets may not have moved much today, but the closing bell brought good tidings for much of October. The Dow rose nearly 12 percent, its best monthly showing since 1987. The NASDAQ was up 13 percent, the most since 2002. And the S&P 500 also gained 13 percent, its best October since 1974.

The figures were boosted by Thursday's news of the European bailout deal. It's designed to keep Greece from defaulting, while preventing the financial crisis from spreading across the eurozone. Investors also took heart from hopeful signs that a double-dip recession might not be in the offing after all.

The U.S. economy grew at an annual rate of 2.5 percent in the third quarter, and consumer spending jumped six-tenths of a percent in September. The numbers were better than expected, but there were also reminders that the recovery is still relatively weak.

The world's biggest appliance maker, Whirlpool, announced today it's cutting 5,000 jobs. That's about 10 percent of its work force in North America and Europe. It cited weak demand and higher costs for materials. Meanwhile, there were also questions about just how the new European debt deal will work and who will pay for expanded bailout efforts.

The head of Europe's rescue fund visited Beijing today, hoping to entice the Chinese to invest in the multibillion-dollar plan. He dismissed suggestions that China might demand political concessions in return.

KLAUS REGLING, European Financial Stability Facility: There's no special deal. It's the normal conditions. We publish those conditions on our website. And there is no -- nothing special. They find this an interesting investment.

JUDY WOODRUFF: In turn, the Chinese vice foreign minister signaled her country's willingness to help.

FU YING, Chinese vice foreign minister (through translator): We do not think that Europe will just collapse. We hope that, by fighting this crisis, the mutual understanding and trust between China and Europe can be enhanced, and the cooperation between us can be deepened. We hope that this crisis can be an opportunity for all of us to make progress.

JUDY WOODRUFF: Investors and political leaders around the world will be hoping the same, and they will be waiting for next week's report on U.S. unemployment in October, plus the Federal Reserve's latest outlook.

"U.S. Corporations 'in Good Financial Shape,' but Still Reluctant to Hire" (Part-2)
PBS Newshour 10/28/2011


COMMENTS:

I noted the following comments in Part-2.

JUDY WOODRUFF: But one keeps hearing that businesses are still -- there is still this air of uncertainty hanging over everything, and that businesses are holding back. So how do you square that with what some of these numbers show?

NEIL IRWIN, The Washington Post: Yes, what's happening is, businesses, they're buying enough equipment and they're hiring enough employees to keep up with demand they already see.

What they're not doing is investing in the future. They're not expanding their capacity. They're not building a new factory and hiring 1,000 new workers to staff it.

Instead, they're only doing what they absolutely have to, to fulfill the demand they're seeing from their consumers. So, as long as that's the case, we won't see rapid growth. We will see this kind of 2 percent to 3 percent growth that is really treading water, rather than growing rapidly.

JUDY WOODRUFF: And what about consumers? What are they buying?

NEIL IRWIN: What they are not buying is a lot of big-ticket items. So, auto sales, we saw with Whirlpool, appliance sales, these big-ticket durable goods have not really risen the way you would have hoped them to. That said, people have cut back so much that there is not the room to cut that you might expect.

JUDY WOODRUFF: And is it possible to say which one of these, or is it both, that is the main driver for growth? Is it mostly the investment? Is it the consumers or what?

NEIL IRWIN: Look, consumers are weighed down by a lot of things. They have huge household debts, mortgages they're paying off. People are underwater on their mortgages. And that's what is holding back consumers. Consumer spending is rising fairly slowly.

The corporate sector is actually in good financial shape. They have lots of money on their balance sheets. They have access to the debt markets. They can borrow money when they need to. Debt levels are fairly modest. So this growth out of the corporate sector, that's one of our best hopes going forward for this expansion to continue.

JUDY WOODRUFF: But how healthy, Neil Irwin, can this recovery be if companies, if businesses are still not hiring people in a big way?

NEIL IRWIN: Well, ultimately, it will never feel like a recovery until that changes. And what we saw this week is companies are expanding, but only as much as they absolutely have to. They're still reluctant to bring on employees.

We saw very weak job growth the last few months. Unless that changes, this will not feel like a recovery to a lot of Americans. This will not feel like a place where we have a low unemployment rate and the conditions we all want to see.

This is a chicken-or-the-egg scenario. Consumers cannot afford to buy big-ticket durable goods, manufacturers do not see an expanding market for their goods, the result is they do not hire more workers.

But, as I have been reading in many economic articles, the U.S. has a fundamental problem. We came to expect the booming economy that we had for decades. The post-WW2 economy of big production and lots of jobs. Problem, that is no longer the economic truth we live under today.

Today's economic truth is that the good-old-days are NOT coming back.

Some old jobs are gone for good due to technology, the jobs being replaced. New jobs are requiring a different skill-set and many workers have yet to acquire them, and there is a shortage of younger workers that do have the needed skill-sets. Then the high production of the past is likely to not return to the same level we had in the past. Whatever happens, it will take a long time.

Finally, our politicians (Republicans, Democrats, liberal, conservative) are making false premisses. Either because they are caught-up in the same old WW2 economic model or for political gain (win the next election no matter what).

ALSO

"Europe Tries to Lure Chinese Cash to Back Rescue of Euro" by LIZ ALDERMAN and DAVID BARBOZA, New York Times 10/28/2011

Excerpt

A day after European leaders unveiled their latest plan to save the euro, top officials opened talks with China in an effort to lure tens of billions of dollars in additional cash, giving China perhaps its biggest opportunity yet to exercise financial clout in the Western world.

China is expected to demand significant concessions, including financial guarantees and limits on what Beijing sees as discriminatory trade policies, in exchange for any investment in Europe’s emergency stability fund. The head of the rescue fund, Klaus Regling, got a cautious reply from Chinese officials Friday during a visit to Beijing, where he said he did not expect to reach an investment deal with China anytime soon.

A senior Chinese official, Vice Finance Minister Zhu Guangyao, said China — like the rest of the world — was still waiting for the Europeans to deliver crucial details on how the rescue fund, the European Financial Stability Facility, would operate and be profitable before deciding on whether to participate.

That Europe would turn so openly to China to help stabilize the debt crisis shows how quickly the Chinese economic juggernaut has risen on the world stage. Indeed, if China comes to Europe’s aid, it will signal a new international order, with China beginning to rival the role long played by the United States as the world’s pivotal financial power.

“This would be a tectonic shift,” said Pieter P. Bottelier, an expert on China who teaches at the School of Advanced International Studies at Johns Hopkins University. “It would be so important economically and politically.”

Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington, said Europe’s appeal was another sign that China was already a dominant global power.

“China’s power is more imminent, broader in scope and greater in magnitude than anyone imagines,” he said. “For instance, China’s currency is already having a negative effect not just on the U.S. and Europe, but on everyone else, too. And the rest of the world can’t do anything about it. If that’s not dominance, what is?”

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