Friday, January 4, 2013

Delving into the numbers

by Clifford F. Thies

The stock market reacted positively to the latest budget deal, perhaps because the way that the government avoided the fiscal cliff was less worse than other politically-possible options.

The government's labor market report just released is neither good nor bad. The economy remains stuck at a high rate of unemployment. The number of jobs grew, but not at a rate that would lower the unemployment rate, and the unemployment rate was unchanged from a slightly revised figure of the prior month.

ADP's jobs report released a couple days ago shows divergent trajectories for jobs in the small business sector and the medium and large business sectors. Jobs shrank in the small business sector, while they grew in the medium and large business sectors.

The index of leading indicators has been on the upswing, having passed through a rough spot at mid year.

Business confidence is improving and can now be said to have reached neutral. Consumer confidence is also improving but has shown considerable volatility. Long-term expectations, however, continue to deteriorate.

The Federal Reserve stands ready to buy U.S. Treasuries in whatever quantities are needed to keep interest rates low. There is a lot of inflation being worked into the money supply and it's just a matter of time before prices start to rise.

The price of energy continues to moderate, driven by huge discoveries and advances in our ability to extract energy. The falling price of energy is currently off-setting the gathering inflation.

Over in Europe, where they fell into a double-dip recession, there now appears to be some light at the end of the tunnel. Of the PIGS, Portugal may be the first to start to recover.

The U.K. and Japan, like the U.S., continue to run Greek-like deficits. But, unlike Greece, they are not in crisis because of the fact they can monetize their debt. Look for the inflation to get underway in all three.

In the emerging markets of the world - the BRICs - economic growth is strengthening. This and the falling price of energy are the two most positive forces in the global economy right now.

In the submerging markets of the world (e.g., Argentina, we do not yet have an acronym) - economic conditions continue to decline, along with worsening or bad political conditions.

Dr. Thies teaches statistics and econo-metrics at Shenandoah Univ. in VA.

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