According to the mainstream media, the world is about to embark on an economic boom similar to the post-WWII economic miracle. Let’s examine these items outside the recovery narrative and see what we learn.
South Korea is one of the few bright spots in the world economy with GDP growth of 2.3% over the past year. This growth is based on a weakening currency and bringing forward government spending from the second half to the first half of the year. Once the effects of the weaker won and spending surge wear off, South Korea is left with a flailing China and an increasingly competitive Japan as its two largest trading partners. Growth will slow significantly in the second half of the year.
Jobless claims remain elevated in comparison to other recoveries, and “breadwinner” jobs are just not being created. If you want a part-time job at a fast food restaurant, then this is the recovery for you. Note that we are still using the word “recovery” to describe the economic situation, because implicit in the term is that the economy has not recovered yet, it is still sick.
For the first time since the beginning of the Eurozone recession, the U.K. has managed to grow for two consecutive quarters. The British wagon is hitched to the EU for better or worse, and the U.K. will not be able to expand GDP better than the present level as long as the Eurozone remains weak. It was assumed that new BOE head Mark Carney would increase money printing, but these positive numbers may change the plan.
Of course, politicians are proclaiming the end of the Spanish depression with the recent 1 point drop in unemployment. The red circles above indicate the other two times that this has happened during the depression. Neither decrease was sustained, and this one probably will not be either. One-third of the rate drop can be attributed to people leaving the workforce, and the jobs created were temporary positions for the tourist season. Moreover, the actual number of full-time jobs dropped 50,000. The improvement in this one indicator belies a worsening Spanish economy.
The answer to the question posed in the Reuters headline is “a lot.” The chart above shows how the S&P 500 is closely tracking the expansion of the Fed’s balance sheet with both about 70% larger over the last four years. Revenue growth has been rather lackluster, but profits have surged:
All of that money printing has provided the cheap financing necessary for corporations to buy back shares. Less shares means greater profits per share and higher share prices. Profits per share have almost doubled since 2009 on revenue gains of about 12%. All of this money has done little to improve the labor market, though the corporations and 1% continue to do very well for themselves thanks to Uncle Ben’s largesse.
The Reuter’s headline is accurate, and the Wall Street Journal’s is basically hype. Massive cost cutting has helped GM narrowed its losses in Europe, but the car market remains in a torpor as seen in the chart above. In fact, while GM managed to cut costs, it could not sell more cars to Europeans, and both its market share and total sales fell. Europe did not “improve.” GM improved its cost structure, and European continued to buy less cars.
China is having issues and will have to face the consequences of its growth at all costs policy. In the meantime, the financial system remains under strain with the overnight repo rate slowing creeping back up to the 5% launch point.