BofA Merrill Lynch economist Ethan Harris isn’t buying what he calls ”extreme perma-bear stories” about the U.S. economy. A couple of weeks of disappointing U.S. economic data, culminating in Friday’s weak employment report , revived concerns that the economy was struggling to reach recession escape velocity.

In a research note, Harris said the bad news hasn’t changed his forecast for U.S. economic growth of 3 percent-plus over the next two years. He says the economy has a natural tendency to eventually return to full employment once the “negative shocks” are gone. He points to six major economic theories to support his view, including Keynesian, the Austrian school, and the “financial accelerator model,” which counts Federal Reserve Chairman Ben Bernanke among its advocates. 

But he acknowledges there is one well-known economic theory which does not support his forecast:

“The one notable exception to this view is Marxism. In Marxist theory the capitalist world is doomed to ever worsening cycles of boom and bust, culminating in its collapse and the assent of communism. Needless to say, we do not ascribe to this view.”

In case you weren’t depressed enough about the state of the U.S. labor market and the 7.2 million jobs lost since the start of the recession, check out this factoid from JPMorgan economist Michael Feroli:

“We would need payroll gains of 200,000 per month every month for three straight years just to get back to late 2007 levels of employment, and even that calculation ignores the labor force growth over the intervening years.”

Take your pick of bad September job news: the average workweek declined; average hourly earnings increased a paltry 0.1 percent; the broadest measure of unemployment and underemployment rose to 17 percent; and the average duration of unemployment hit an all-time high of 26.2 weeks.

Welcome to the recovery.

Reuters correspondent Sumeet Desai talks about the G20 draft communique and what it means for rebalancing the world’s economy.

Reuters will be live-blogging the G20 summit in Pittsburgh on Thursday and Friday. Our army of correspondents, equipped with Twitterberries and Flip cams, will be bringing you the latest on the economy, climate change and bank regulation.

Click on “Make a comment” below to leave us your thoughts on what the world leaders in Pittsburgh should accomplish. And visit our G20 page for full coverage of the event.

David Bowers, the one-time Merrill Lynch strategist who now co-drives consultancy Absolute Strategy Research, reckons policymakers and financial analysts have got it wrong about the credit crunch. It is not a consumer event, he says, it is a corporate one.

As evidence, Bowers’ ASR notes that of the roughly 4 percent decline in U.S. economic growth this year, around 85 percent can be attributed to a decline in the capex and inventory contribution. A similar picture can be found in the euro zone — where some  60 percent of a near 5 percent decline is from corporate. There is less of a case in Japan, but at roughly 40 percent of a more than 6 percent decline it is still a sizeabe chunk.

Bowers believes this huge decline is going to force companies to resume output because there will be shortages.  On the one hand, this will lead to improved corporate cash flows, narrrowing credit spreads. On the other a combination of inventory shortages, supply chain bottlenecks and base effects suggest to ASR that inflation is on the way.

 ”Get set for a ‘bear flattening’ in U.S. yield curve with two-year Treasuries most at risk,” ASR says.

Reuters columnist Agnes Crane breaks down the latest job report:

As if by magic, industry has become all upbeat about the prospects for the German economy – just in case anyone had the impression companies were about to start firing workers en masse after an upcoming federal election.

This was the tone of a German newspaper editorial this week which said “what a coincidence” it was that sentiment had shot up in the weeks before the Sept. 27 vote.

“Some pronouncements give rise to suspicion that interest groups are trying to pacify the electorate ahead of the ballot box,” the Neue Westfälische daily wrote. “The motto seems to be: don’t draw any more conclusions from the crisis, it really wasn’t that bad after all.”

Just two months ago, a number of leading think tanks said a forecast by Chancellor Angela Merkel’s government that the economy would contract by six percent this year was not pessimistic enough.

Now surveys show German business morale is now at its highest level in nearly a year, financial market analysts’ expectations for the economy have climbed to a 40-month peak, and an increasing number of bank economists have forecast Germany will bounce back from the crisis strongly next year.

Are firms and analysts clubbing together to pull the wool over people’s eyes?

“The recession has been cancelled,” wrote the Schwäbische Zeitung daily. “But you’re left wondering: how is it possible for a lumbering economic tanker to perform such a rapid 180 degree turn?”

Thanks in part to a state subsidy that encourages firms to cut working hours instead of firing staff, German job losses have been relatively slight – even though the government’s forecast sees gross domestic product (GDP) contracting nearly seven times more sharply this year than in any since the war.

This has sparked reports that German bosses have made a tacit agreement not to cut jobs until after the election to counter the risk of voters returning a left-leaning government that could prove hostile to big business.

Beneath the scepticism are lingering suspicions about the banking industry.

“In autumn and winter, a lot of companies are going to be on the brink financially. Then we’ll have to see whether the banks thank the taxpayer for being rescued by offering sensible loans," the Neue Westfälische wrote. "However, given that morality isn’t a category in the business, this hope is likely to be disappointed."

Five things to think about this week:

CENTRAL BANKERS IN A HOLE
-- The global economy and financial system appear on the road to recovery but that is in large part due to unprecedented official stimulus that will have to be withdrawn at some point - the questions investors want answered are when, and how.  Central bankers no longer appear to be quite as shoulder to shoulder with one another on coordinated policy as they were last year in the aftermath of Lehman's collapse.
 

CHINA STOCK WATCHING
--  It is August, liquidity has dried up with the summer holiday season in full swing, and investors are palpably more cautious about the economic outlook now than they have been for months. It is against this backdrop that that the Chinese stock market is emerging as the focal point and driver of all other asset markets. The Shanghai Composite technically slipped into bear market territory earlier last week, shedding 20 percent in the two weeks from Aug. 4 to Aug. 19 on profit taking from the 90 percent surge this year. There is no major Chinese economic data scheduled for release this week, leaving thin markets at the whim of sentiment in what is a notoriously volatile stock market.
 

GROWTH FOUNDATIONS
-- The United States, Britain and Germany unveil revised estimates of Q2 economic growth. Revised GDP figures rarely garner much attention but with initial estimates from Germany, France and Japan earlier this month all showing that these countries exited recession in the last quarter, investors will be looking for further evidence the world economy has turned the corner. The hard data is stronger now than it has been for some time but is the global economy building a solid base for recovery, or is it more likely to buckle were authorities to begin withdrawing the massive fiscal and monetary stimulus?
 

ABNORMALLY NORMAL MONEY MARKETS
-- A veil of normality continues to cloak interbank money markets, with Libor at record lows and some closely-watched measures of money market health like Libor/OIS spreads and the TED spread almost back to levels seen before August, 2007. But that is only thanks to authorities' liquidity injections, guarantees and asset purchases worth trillions.  Banks have hoovered up this free or ultra-cheap money but still are not feeding it into the real economy, with lending to business and households still patchy at best. Euro zone M3 money supply figures for July are expected to show another slowdown in the rate of growth, to 3.3 percent on the year from 3.5 percent in June.
 
SAFE AS HOUSES?
-- Figures will show how the U.S. housing market, the epicentre of the global financial crisis, is faring four and a half years on from its peak. The Case/Shiller house price index is expected to show the annual pace of price declines slowed again in June, fuelling the belief that the market has bottomed.  But the number of foreclosures is high as the U.S. labour market remains weak, and the national housing market stock remains high by historical standards. Economists say there will be no sustainable recovery of the financial system and economy without a durable recovery in the US housing market.

Remember that old chestnut about how it’s a recession when your neighbour loses his job and it’s a depression when YOU lose yours?

Well, research carried out by Datamonitor suggests a similar divergence between British consumer perception and behaviour during the current economic downturn.

The survey found that 90 percent of UK consumers believed that the country was in the grip of recession but slightly over half of them (53 percent) said their household finances have either improved or stayed the same. Similarly, twice as many people feel their job is safe as those who have actually lost or fear they will lose their jobs.

“In the majority of households there does not appear to have been any significant increase in financial strain that results in consumers displaying recessionary behavior,”

“On the contrary, only 8 percent globally think that their household’s general financial situation has worsened significantly since before the downturn, and thousands have actually benefitted from reduced mortgage repayments, for example.”

Datamonitor said the UK could be in the grip of a “psychological recession”, adding that the term was not meant to trivialise the economic contraction but to illustrate that the knee-jerk psychological reactions of consumers to the threat of recession were “primarily responsible for the perpetuation of the recession.”

Its solution is to…well, look on the bright side.

“The communication of positive messages through the government, the media and the banking industry is what is needed to facilitate a psychological shift and confidence boost amongst consumers, bringing about a ‘Psychological Recovery.”

(An earlier version of this post incorrectly said that Friends Provident had commissioned the Datamonitor survey)

The next time anyone questions the reliability of Chinese statistics, they should first spare a thought for the sensitive, earnest souls who gather the data. The National Bureau of Statistics asked its employees to craft poems to celebrate the 60th anniversary of the People's Republic of China. 

Like Chinese growth surging beyond economists' forecasts, their literary talents are sure to leave critics gasping for breath.

Here are three of the entrants in the poetry competition, "Statistics Affection: We Walk Together".

---

Numbers
by Yu Bo, statistician in Fujian province

Numbers
Poor, Innocent
For the people, fill in the tables
True-to-facts, they can be relied upon
Ask for the source of numbers, say no to fakes
The whole nation moves forward, a blessing for people of all nationalities
For 60 years, strengthening the roots  of the Chinese nation

---

In the Sea of Numbers
by Yu Jiao, statistician in Zhejiang province

No beautiful languages
But endless calls day after day
No flowers or applause
But doubts and suspicion from others
No melting sceneries
But a bunch of dry numbers flowing
…
But, we keep on
As we know
It is our course
A course of heavy tasks and winding roads!
Because
The pace of forward marching needs measurement by statistics
The take-off of the economy needs proof from statistics.

---

Love the Motherland, Love Statistics
by Wang Jiaowei, statistician in Shandong province

How many times, for a poll, or a survey
I work as busy as a bee, or an ant
How many times, for a formula, or a data series,
I toss and turn in bed, sleepless the whole night
How many times, for completing a form, or an indicator
I awake from excitement in dreams, to wake my wife as well
…
In life
Some may laugh at me for doing statistics
Some may look down upon me or my statistics
Some may find it hard to understand what statistics are
And some may wonder why they are included in statistics
Alas, for me, I can smile
Because of statistics
I can dig out the deepest secrets
Because of statistics
I am not alone any more, I can play in the numbers
Because of statistics
I can re-arrange the stars in the sky
Because of statistics
I can have a unique life, and live more meaningfully
I love my life, and my statistics

(Translations by Zhou Xin)

Photo credit: A vendor rests in front of a banner displaying mobile phone numbers at a shop in Shanghai March 10, 2009. REUTERS/Aly Song