The U.S. economy is at growing risk of a double dip.
Much of the focus right now is on today's jobs report's showing a higher unemployment rate and meager growth in total payrolls (a virtual measuring error). That alone doesn't tell us much that we don't already know; \that growth in the U.S. isn't strong or solid enough to inspire the confidence of employers.
It's the monthly drop in manufacturing jobs -- the fourth straight month of decline in factory payrolls -- that's both new and troubling from a short-term, cyclical perspective.
Manufacturing is the most sensitive to the business cycle and often leads the rest of the U.S. economy in and out of recessions. This report adds to some evidence in recent regional manufacturing and purchasing manager surveys of underlying weakness in new orders and other forward-looking indicators.
The U.S. has had to rely heavily on government stimulus and exports to drive its "recovery" (which I've argued is hardly worth calling a recovery).
Half of what little economic growth the U.S. has had over the past year has come from exports (Table 2, Contributions). Big threats to the U.S. economy are weakening growth and currencies abroad -- especially in Europe, where the region's debt crisis jeopardizes everything.
The U.S. has had to rely heavily on government stimulus and exports to drive its "recovery" (which I've argued is hardly worth calling a recovery).
Half of what little economic growth the U.S. has had over the past year has come from exports (Table 2, Contributions). Big threats to the U.S. economy are weakening growth and currencies abroad -- especially in Europe, where the region's debt crisis jeopardizes everything.
For all the talk of booming emerging markets elsewhere, Europe remains one of our biggest export markets. It was the source of 20% of export receipts over the past year. Germany, the U.K., France and the Netherlands occupy four spots among our top 11 export markets.
As I've written previously:
Today's jobs report reinforces that this may already be happening. It's no wonder the Fed has been involved in bailing out Europe. Weakness in Europe threatens the U.S. recovery, and mutually reinforcing weakness in Europe and the U.S. would in turn kill the global recovery.If Western Europe sinks into a new financial crisis and a new downturn, the U.S. will be dragged into a new recession -- no ifs, ands or buts.
The report effectively ends the debate over extending the Bush tax cuts. Sure, there'll be much back-and-forth in D.C., but there's little debate that the economy needs help.
I'd argue that serious structural reforms -- the kind that would lay a stronger foundation for genuine, organic growth (rather than drug-induced) -- are imperative, or we're looking at continued long-term under-performance (at best) and an eventual major U.S. currency crisis.
Disclosure: No positions.
