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Global Markets Are Still Sliding.

  • Written by Syndicated Publisher No Comments Comments
    July 22, 2011

    In the U.S., almost 150,000 new jobs must be created each month to handle new young people coming into the labor force. For several months the economic recovery had come along well enough that that was being accomplished. But economists were shocked when only 25,000 jobs were created in May, and even fewer, 18,000, in July, well below their forecasts of 130,000 to 150,000.

    The above and below material is by Sy Harding at Street Smart Report

    A large part of the problem was the loss of government jobs at the federal, state, and local level as budget deficits and debt loads are forcing sharp cuts in government spending and services. It was hoped that the private sector would grow enough to pick up the slack.

    But now comes data showing the private sector is also going the other way, with the Labor Department reporting businesses are now laying off workers at a pace not seen since the first quarter of last year (when the stock market tanked 17% from May to mid-July on fears the economy was dropping back into recession).

    The big hope has been that the slowdown in the first half was a temporary soft spot, and the recovery would get back on track with robust growth in the second-half.

    But numbers coming in for July so far are showing a potential acceleration of the global downtrend, with important consumer confidence in the U.S. plunging in July to its lowest level in two years.

    In Europe, it’s being reported this morning that private sector economic activity slowed to a near halt in July in the 17-nation Eurozone, which collectively is the largest economy in the world. The PMI Index for the euro-zone fell to a 23-month low of just 50.8 in July, from the already worrisome 53.3 in June. At 50.8 the Index is just fractionally above the 50 level that separates expansion from recession.

    In China, it was reported last night that HSBC’s preliminary reading of its PMI index fell to a 28-month low of 48.9 in July, actually in the area that indicates contraction. An HSBC spokesman said it is expected that China’s industrial growth will continue to decelerate in coming months as China’s tightening measures to fight off inflation continue and filter down into the Chinese economy.

    In Australia, the National Australia Bank reported that Australia’s business confidence fell to a reading of 6 in the 2nd quarter from 11 in the 1st quarter.

    In Brazil, which is expected to pass Italy this year to become the 7th largest economy in the world, the central bank raised its key interest rate again yesterday, now at 12.5%, as it continues to contend with sharply rising inflation.

    Most major global stock markets have been recognizing the problem and factoring the slowdown into stock prices in significant corrections.

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    But in the U.S. the market remains resilient, and investors seem to have no concerns. The latest poll of its members by the American Association of Individual Investors, released last night, shows 39.9% bullish, 29.5% neutral, and only 30.6% bearish.

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    U.S. investors seem more focused on the impasse in Washington, and the debt crisis in Europe than the stumbling economic growth.

    But while seeing Washington reach an agreement on raising the U.S. debt ceiling will be a relief, it will not change the economic problems of slowing global growth, rising inflation, and record government debt that requires austerity measures. Nor will yet another deal in Europe on another fix for its spreading debt crisis.

    The U.S. Housing Industry.

    I haven’t talked about the housing industry in awhile. But this week we are getting the first reports from the industry in awhile.

    Many economists believe the U.S. economy cannot truly recover, that is on its own and in a sustained way, until the housing industry recovers.

    The housing and auto industries have always been the main driving forces of the economy in both directions, in good times, and leading the way down into recessions.

    That makes sense. Consumer spending accounts for 75% of the economy, and houses and cars are by far the two largest purchases made by consumers. And when they buy a house or car they are not just spending the cash they use for a down payment, but are also spending many times that much in borrowed money obtained via a mortgage or car loan. So such purchases have far larger impacts on the economy than other consumer spending.

    Home construction and auto production are also not only two of the largest sources of good-paying jobs, but also have more ‘spreading of the wealth’ effect through the rest of the economy than say sales of foreign made clothing and electronics, by boosting the sales of so many other industries; furniture and appliance makers, lumber, plumbing, and electrical suppliers, insurance and real estate companies, real estate tax revenues to municipalities, and on and on. The auto-makers aren’t quite as influential on the economy as they once were, since they have become primarily assemblers, with the majority of parts and sub-assemblies produced overseas.

    In the housing industry, sales of existing homes are obviously not quite as important to the economy as construction and sales of new homes. But existing home sales often lead to purchases of new appliances and furniture, re-modeling projects, etc.

    However, in the current tepid economic recovery, existing home sales are extremely important, since there is such a huge overhang of unsold existing homes, which are less expensive to buy than new construction. That inventory of existing homes must be cleared out before demand for new homes can be expected to pick up to any important degree.

    On Monday it was reported that the NAHB Housing Market Index, which measures the sentiment or confidence of the nation’s home-builders, rose to 15 in July from 13 in June. Wall Street tried to make a positive out of it, some columnists even writing that it was a sign that the housing market has bottomed. Of course those predictions have been made every once in awhile throughout the five-year housing collapse, each time a positive number has poked in from some area of the industry.

    But we need to realize that the Housing Market Index is on a scale of 1 to 100, and it has been in the dismal range of 13 to 16 for nine of the last ten months, and has not been above 50 since 2006.

    Yesterday it was reported that new housing starts rose 14.6% to 629,000 units in June. That sounds like a big improvement. But 14.6% of a small number is a hardly measurable change. They remain at their lowest level in at least 40 years.

    And yesterday it was reported that existing home sales fell 0.8% in June, to a 7-month low, and an annual rate of only 4.77 million. That puts existing home sales for the first six months of this year below last year’s pace of 4.91 million, and last year’s sales were the worst in 13 years.

    Just as disappointing, the National Association of Realtors reported that a record number of buyers who signed contracts to buy homes cancelled the deals last month, as prices continue to decline. Some buyers had to cancel their contracts when appraisals required for mortgages came in lower than the prices they agreed to for the homes.

    So it doesn’t look like the economy is going to get much help from the depressed housing industry for some time yet.

    To read my weekend column ‘Foolishly At the Brink!’ click here!

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