The Dow Jones Industrial Average soared more than 200 points Friday led by the financial sector. But missing was a solid reason for the move. If anything the DJIA should have been flat at best because a host of key reports were pending within hours.
Any one of those reports could have been bad. But when you have a dollar burning a hole in your pocket, investing willy-nilly seems to be the theme these days. Monday, the reports and their implications started trickling in by dawn’s early light. It would have been better had a cloud cover blanketed the sun.
First came company hiring plans.(1) Already the number of created jobs falls short of merely keeping up with population growth for the entire second quarter. Monday added to the woes as companies across America indicated they would be looking for fewer people in the foreseeable future. Europe’s economic recession and concerns about a continued decline in economic activity there has dampened American employment opportunities.
Then came a report from a survey of economists.(2) The economy watchers were “gloomy” because they saw no potential for reversing the European crisis, the potential Congress will not continue the Bush-era tax rates and no prospect of containing the federal debt. They didn’t see these things coming last Friday while the market was racing ahead but on Monday it mattered.
Within minutes came the distressing news that U.S. retail sales had not only dropped during June but were off more than expected.(3) The drop, .5% from May’s level, by itself wasn’t the only bad news. This marked the third straight month of declining activity at the retail level, something that hasn’t happened since the fall of 2008 when the U.S. recession was in full bloom. Without a healthy retail level, the rest of the economy is mere fluff.
Finally, a stalwart beacon of perpetual optimism, the International Monetary Fund, dropped its projected growth for the world from 3.6 to 3.5% for this year.(4) That is a significant drop this late in the ballgame and is contigently positive on two shaky facts–the Euro Union leadership must follow through on its austerity plans and centralization of the region’s banking system and the effort to ease credit in large developing countries must be effective in growing the economy so already flattening developed countries have someplace to ship their wares to.
Look at those reports more closely.
If companies are no longer in the market for new employees, any value from TARP, the stimulus and QE2 has been felt. It is a given that any government plan which is repeated will have less effect with each effort. Since we have already had three such bailout efforts, a fourth will have less effect than any of the previous, non-starting efforts.
If economists, whose very jobs depend on cheerful news, are “gloomy” how bad is the situation? If there had been an ounce of good news and a ton of bad, the economists would have trumpeted the ounce as the “weightier” of the two measures.
U.S. retail sales were expected to decline from surveys of market traders so that report was no big deal on the surface. Here’s the catch, while sales were 4.7% higher year-over-year for the second quarter, forecasts from the same time frame a year ago had the retail sales figures 6.5-7% higher by now. Obviously a factor was miscalculated for that big a discrepancy.
Then there is the IMF report which is the most important report of all. It puts a ton of pressure on the U.S. to continue going into debt. “The U.S. should raise its borrowing limit,” said Managing Director Christine LeGarde, “otherwise the spillover effects to the rest of the world will be severe.” Great! We now have others telling us what we should do internally. How do you like having the world tell us what to do? Doesn’t fit too well, does it? Now you know how those people feel when we try to inflict “our democracy” on them.
The only way to solve any of the economic problems facing the world is to get government solutions off the table. The politicians should take a page from inmates at the insane asylums and twiddle their thumbs. They have no real answers that will solve the lack of consumer confidence. Governments cannot create viable jobs. At best they can merely create “make work” jobs which always cost more than the results warrant.
The secret is to understand the economy is neither truly bad or truly good and no political statement can change that fact. The economy is what it is. As an individual or family or community, you have to find a way to cope.
It would be easier for us all if government would get the heck out of the way.
“I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man.”–Thomas Jefferson
(1)–Thomson/Rueters report, July 16, 2012, “Fewer U.S. Companies Plan to Hire”
(2)–Moneynews, July 16, 2012, “Experts See Worsening Economic Conditions”
(3)–Commerce Department Press Release, July 16, 2012,
(4)–Moneynews, July 16, 2012, IMF Predicts Slower Growth for World, U.S. Economies”
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