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In much the same way that analysts have been debating whether equities are in a bear market rally or a new bull market, economists now have to deal with the question of whether the global economy is just bottoming out or is now actually recovering. The two things are obviously linked as BlackRock equities chief Bob Doll indicated when he said this week that equity markets will require the economic backdrop to actually improve rather than simply grow less bad if rises are to be sustained.
The less-dreadful-than-feared syndrome has been around for some time. U.S. markets, for example, found themselves cheering the loss of 539,000 jobs in April simply because its was the smallest since October and looked to be an improvement.
But talk of green shoots, a somewhat overused euphemism for the start of economic revival, has also been on the increase: European Central Bank President Jean-Claude Trichet spoke on Monday about the pick-up in GDP evident in certain areas; China said its efforts to boost growth were working; and a lot of institutional investors are acting as if the worst is over.
So, bottoming out or on the way up? Comments below please.
(Reuters photo: Danish Ishmail)
If you’re one of the 539,000 people who lost their job last month, do you have reason to be hopeful today? The stock market seems to think so. And many of those who work in the financial sector say the April jobless report, which included an unemployment rate at a quarter-century high around 9 percent, indicates the economy is near bottom. One analyst said, “May looks much more favorable”; said another: “You can make the case that the panic layoffs that we saw at the turn of the year are starting to ease.”
Not everyone was optimistic. “The big question is has the peak in job losses hit? I am somewhat skeptical that we have seen the absolute worst of it, but you can’t rule that out,” said Jay Mueller, a senior portfolio manager at Wells Capital Management.
The economy lost over half a million jobs in December and shed the greatest number of workers in 2008 since the end of World War II. The grim news didn’t stop there: the unemployment rate jumped to 7.2 percent, the highest in 16 years. Many analysts say it will only get worse before it gets better.
“The job situation is ugly and is going to get uglier. There’s no reason to expect hiring anytime in the next three to six months,” said Richard Yamarone, chief economist at Argus Research in New York. Tempus Consulting’s Matt Esteve agrees. “No matter how you look at it, those are dismal numbers,” he said.
November’s job losses were the steepest since December 1974, when 602,000 jobs were shed. Analysts polled by Reuters had predicted a reduction of 340,000 jobs.
“This is a clear employment blowout. Firms are reacting as dramatically as they can to make sure they have cost structures they can survive the recession we are in,” said Joel Naroff, president of Naroff Economic Advisors.
AT&T is joining the ranks of companies sending its employees to the unemployment line. The top U.S. phone company says it will cut 12,000 jobs as the economic crisis bites deeper. Chemical maker Dupont added its own dash of dour news, announcing 2,500 job cuts. While there was some cause for cheer from weekly jobless data that showed the number of workers filing new claims for benefits unexpectedly fell last week, the figure was still in line with a shrinking labor market and economy. So, really, no good news there.
Private employers are slashing jobs and the services sector, which powers most of the economy, is in its worst slump ever. “It’s impossible to find any ray of light here,” Joel Prakken, chairman of Macroeconomic Advisers in St. Louis, Missouri, said of the job losses last month.
With the government working to bail out banks, and possibly automakers, and with a top adviser to President-elect Barack Obama underscoring the need for an economic stimulus package, do you think things will get better and when?
Times are tough for Americans as their wallets take multiple blows from the housing slump, rising oil and food prices, growing unemployment, inflation fears and recession talk. Many homeowners are facing negative equity, with mortgages bigger than their property’s value.
Even as recently as November, households were going into debt to maintain spending, but new numbers show that Americans are saving at the highest rate since March 1995.