Home > Uncategorized > 2012/05/11: Better headline global economic data could be highly ‘specious’

2012/05/11: Better headline global economic data could be highly ‘specious’

© 2012 ROHR International, Inc. All International rights reserved.

“Specious.” It’s one of those terms that gets tossed around quite a bit, even when it’s not necessarily proper in some contexts. Yet, it would certainly seem to apply to a goodly portion of recent “excellent” global economic data. And that was even before a range of important Chinese economic data disappointed today.

Much is suspect after the lower US Unemployment rate reported last week right through economic releases this week. And this is not a matter of attempting to find a dark cloud to obscure these silver linings. It just seems a desire to look for reasons why the global economy and equity markets are still good is once again overshadowing thorough assessment of the ‘story behind the numbers’.

And that’s true everywhere from the Far East right around into North America. Beginning with the latter, there is little doubt that the lower US Unemployment rate reported last Friday was a function of a lower labor force Participation Rate. In fact, it was down to 63.6% from 64.0% as recently as December. That’s not only quite a drop; it also speaks of a more pernicious tendency just as the Obama administration would assert this is slow yet steady “progress.”

That is the degree to which the folks who have left the unemployment rolls may not have dropped out voluntarily. It is no secret that a surge in layoffs occurred in the US in the wake of the 2008-2009 severe economic and market problems. Even as the US administration has been extremely keen to extend unemployment benefits availability above and beyond the previous regime, that is now coming to an end for many folks. And those who are no longer ‘officially’ looking for work while on jobless benefits are also dropped from the ‘unemployment’ numbers.

This not only portends a certain portion of the population will be in a more depressed economic state. It also has implication for the US fiscal and retirement program calculus. One of our favorite ‘street’ economic commentators said it best in his timely assessment of the US Employment report last Friday…


As all of the usual experts (Liesman, Zandy, Swonk etal.) were discussing whether the US Unemployment rate would continue lower due to that very tendency to improve on a lower Participation Rate, CNBC’s Rick Santelli noted one level on which it was no measure of success: The degree to which a shrinking workforce means, obviously, fewer workers. And that has all manner of implications for general tax receipt levels, and especially areas which are becoming critically important across time like Social Security funding for the burgeoning Baby Boom generation retirement and extended lifespan.

All of which might only be a US problem, if other recent economic data didn’t have implications for the rest of the global economy. In the first instance let’s consider that harbinger of Asian economic performance, Australia. We noted at the top of the week that the key economic data was going to make the late part of this week the most important horizon. And right on cue even prior to the Bank of England denying any further quantitative easing (QE) was on tap or the weaker-than-expected US Import Price Index, there was what appeared to be a better than expected Australian Employment report.

A headline gain of 15,500 jobs versus an expected loss of 5,000 jobs certainly seemed to be “good news.” Yet, that ‘improvement’ was achieved through the addition of 26,000 Part-Time jobs into a loss of 10,500 Full-Time jobs. In other words, the headline number was deceptively friendly above what was really a significant shift to “underemployment” in Australia that is similar to what we have seen in the US. The surprising size of the Reserve Bank of Australia 50 basis point rate cut last week (to 3.75%) makes more sense in light of that and other recently weak Australian data.

Yet even that was preceded yesterday morning by more “good news” …from China. The anticipated $8.00 billion trade surplus actually came in at almost $18.5 billion. Now that is surely a sign of stronger economic turnover! Well, maybe not so much. Once again, this was a number that reflected a successful net result for China out of weakening overall turnover.

The facts are that the exports that should have been robust if the general global economic situation was encouraging came in at plus 4.9% year-on-year against an estimate of a 9.1% gain. Okay, but some might say it was still up overall. However, in our view the more important indication was that imports which were expected to be up 12.5% year-on-year were only up a measly 0.5%! And that is far more important, as it speaks of the problem the Chinese government is facing in encouraging more domestic demand.

We laud them for a shift which is necessary to at least begin to address major global imbalances. However, the sheer government commitment to establishing a broad and credible social safety net is not going to change the Chinese People’s ‘saving habit’ that has been established across many decades. Mere government commitments to a credible social safety net are not going to cause immediate changes.

As noted in our post Highlights and Headwindsback on April 25th, “Whatever else one may assume about the successful middle class in China, we know two things for certain: they are both shrewd and frugal.”  Their high savings rate is there for a reason. “And they are not likely to significantly loosen the purse strings until they have some confidence in the (government provided social safety net and) new regime taking power later this year.”

“As such, there will be a transition period.” To wit, “…an easing response from the Chinese government… …in previous cycles that was enough to foment a return to strong growth. However, if the move toward investment in the social safety net (and away from capital goods and construction) is real, there is reason to doubt as much strength will ensue in the coming cycle.”

And that inference from various factors, including yesterday’s Chinese Trade numbers, seems to have been amply borne out in this morning’s Chinese economic data. Disappointing figures for both Retail Sales and Industrial Production are somewhat of a shock to the rest of the world expecting business as usual on the Chinese economic response to the government easing bank reserve requirements. That doesn’t necessarily make it a disaster; as we have noted of late in several forums, it is just that China is likely the ‘tipping point’ between a relatively stronger US and now obviously weak Europe. As good as the transition in China might be in the longer run for the global economy, the initial response comes at a relatively inopportune time.

General Market Observations

So while the equities have put in a relatively resilient holding action from the key June S&P 500 future 1,338 Tolerance of the 1,355-50 general support level, the question is whether they can continue to improve or ultimately knock out that support. The most important near-term factor is whether the June S&P 500 future can close back above the historic congestion (last May’s extreme high prior to the selloff) and a recent pattern DOWN Break at 1,367. Yet of course, as has been the case on recent form, that will also likely be quite an influence on the other asset classes. That includes the countervailing trend in govvies and the US dollar, as well as the recent weakening of commodity currencies and commodities along with the equities.


These are still significantly the same as the technical projections just below the calendar in the right-hand column.

Thanks for your interest.

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