Two days ago, we wrote
At first, the government seemed willing to tolerate high rates and plunging liquidity in a bid to move to a more sustainable growth model. Once they realized, that they were heading into a full-blown financial crisis, the appetite for reform quickly dissipated. Now, it seems that China will allow additional leverage in order to maintain a 7.5% growth rate. (Around the Globe 09.11.2013 )
Today, the Wall Street Journal caught up to the blogosphere and began questioning the source of China’s rebound. While the Chinese government has paid lip service to reforming its economy, it does not have the stomach for low growth and the potential instability that this will breed; hence, China will continue its credit binge indefinitely or until a financial crisis forces a course change.
The confidence index plunged over 5% in August for the steepest drop in the data series in recent memory. Rising mortgage rates and a depressed labor market are weighing on consumers. Consumers do not have the money or credit to dramatically increase spending. Consumer spending accounts for 70% of GDP, so a pickup in growth is unlikely at this juncture.
Retail sales growth remains tepid. These meh results are much better than the Eurozone’s ongoing plunge in retail sales, but they do not portend an acceleration of growth in the near future.
Inflation in consumer goods is very low, so gold has lost a bit of its appeal as a hedge. Moreover, the easing of tensions in the Middle East has also squelched gold’s rally. The bull market for gold is dead, but the price will remain volatile for the immediate future.
Even though employment continues to plummet throughout the Eurozone, the mainstream media cannot help itself and must always present a positive side to the story:
There were encouraging developments in the three countries that have long been at the forefront of the euro zone’s fiscal and banking crisis, and which have received bailouts form the currency area and the International Monetary Fund. Employment rose 0.8% in Portugal, 0.5% in Ireland and 0.1% in Greece, suggesting the three may be on the mend.
The first part of the quote is accurate, but the writer jumps to conclusions in the bold type. When the rise in employment in these countries is placed into context, the “analysis” just does not hold up:
During the long, inexorable march downward, both Greece and Portugal have registered months where employment picked up. You can see for yourself what happened next by looking directly to the right of the those months conveniently circled in red for your perusing pleasure. Each rise was merely a temporary blip on the road to economic ruin.
Ireland is different. The situation has changed and employment has stopped falling, but it is not really growing either:
My interpretation of the data is neither growth or contraction but stagnation. Ireland has barely recovered to 2005 employment levels, and at this pace of growth it will take over a decade for it to do so. Sorry, but there is no good news in this data.