It seems the world just can't get itself into gear, every time there seems to be positivism in the air some more news seems to lead to renewed pessimism. The fears of a double dip recession had started to slightly abate at the end of 2011 as the US came out with better than expected job numbers for multiple months in a row. But as seen recently, this trend has not persisted. In my opinion, the trend seems to be faltering with a string of poor jobs reports in the past months, as seen below in the bureau of labor statistics chart of nonfarm related employment.
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The recent 69,000 jobs created was a drop in the bucket compared to what it will take to restore the US economy to a "healthy unemployment rate" and marked the first time since last June that the unemployment rate rose.
Along with sluggish job creation, the US economy continues to drag along with weak GDP figures. The first quarter grew at an annualized 1.9% down from the fourth quarter's 3.0% grow in GDP. Although retail sales picked up, corporate profits ticked down which is not a positive sign for private sector employment.
Outside the US
On the other side of the Ocean, Europe continues to struggle to get a fine grip on an escalating debt crisis. The pure dysfunctionality of a monetary union for Europe is showing its flaws. One by one countries line up for austerity measures to save them from their own mistakes.
The most recent austerity measures went to Spain for $125B of funds to save the country's dire banking sector. Will Europe ever learn to get things under control?
The unemployment rate in Spain is now as high as the US economy's unemployment rate during the great depression, rising from 23.8% to 24.1% amongst which unemployment rate for youth is 51%.
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Europe as a whole is in a much worst jobs situation than the United States, boasting a recent new high unemployment rate for all European countries of 10.9%.
With 0% GDP growth announced last quarter, Europe is clearly creating the largest downward weight on global GDP. Many countries in the European union are in prolonged recessions. This drop in consumer spending, has trickled over to stronger economies in Europe such as Germany which has recently seen a drop in manufacturing orders as well as a drop in exports, which was primarily caused by weak demand within Europe.
Not only are countries within the European union affected, but due to global expansions and globalization the weakness in Europe is affecting many other economies such as China, one of the largest exporters to Europe.
China has been in its own spotlight with the fear of a drastic slow down as one of the largest contributors to global GDP and by far an economy that has consistently produced high growth rates. As one of the largest exporters in the world it is clear that if other economies are weakening, that demand for products will decrease and China's growth will slow. Yet there are many other factors that have affected China's situation along with sustained periods of high inflation rates and the eventual effect this type of price increase has on the economy and demand in general. China is also in a transition phase into a more mature and developed country in which the government and central bank aim to have a more sustainable growth rate in which inflation itself is more controlled.
But, one of the recent factors showing China's current struggle to keep the economy growing is the central bank's cut to its interest rates, representing the first cut since 2008. Not only did they cut interest rates but they also cut state set fuel prices in order to try to boost consumer spending.
Some analysts are predicting 7.8% GDP growth for the second quarter of 2012 which demonstrates a fairly large decline in GDP growth in comparison to China's 9.5% for the same period last year. Below is a chart from Bloomberg Business Week demonstrating a clear slowdown for China by gauging five main factors; electricity output, fixed investment, floor space, tax revenue and exports.
Among high growth countries China is not the only one feeling the pain. India, also a large exporter experienced a decline in GDP growth missing estimates of 7.7% by 1%. Brazil also showed weakness by demonstrating consecutive declines in economic activity.
The Financial Markets
As we can see in a world where all countries are interconnected and work together, a few problems can escalate and affect the global economy in a large way, especially when some of these problems come from regions that have a large impact on the global scene. We are in an era of awakening from the impact of debt ridden countries and economies. The US economy struggles to produce at an acceptable growth rate to facilitate job creation. Europe is still attempting to find lasting solutions to their debt crisis, which may be impeded now by Greek elections in which we face uncertainty about the party to be elected. This may drastically affect whether Greece sticks with current austerity measures and budget cuts. China, affected by a steep global slowdown is attempting to handle its economy with care in order to keep growth at a modest rate without causing extravagant inflation. China's policy makers may have tightened policies too much during a time of slow economic growth and are now trying to boost the economy and consumers by lowering rates and prices.
Due to all of these economic uncertainties markets have clearly demonstrated investors' pessimism. The S&P 500 (SPY) and DOW Jones (DIA) have both practically erased all gains for 2012.
S&P 500
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DOW Jones
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Both charts look like they are going to re-test the 200 day moving average and seem to be short term bearish as the 50 day moving average crosses downwards across the 100 day moving average.
As time passes we will see if all pistons in the economy can eventually run at full force once again, on the hopes that this period is temporary and that this crisis can be resolved with sustainable measures. Who knows, maybe this will only be resolved with something as drastic as letting some European countries go bankrupt and dissolving the Euro, but that remains to be seen. As for now the markets will remain volatile until a clear future path can be drawn.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
