Rosy head­lines ob­scure some trou­bling trends

The Washington Times Daily - - Business -

The data flow picked up this past week, but much like what we saw with the Bureau of La­bor Sta­tis­tics take on Fe­bru­ary em­ploy­ment, the head­line was far rosier than what was found upon sift­ing through the data in greater de­tail.

For ex­am­ple, although the econ­omy cre­ated 227,000 jobs in Fe­bru­ary, the num­ber of jobs cre­ated slowed com­pared with Jan­uary and the qual­ity of jobs cre­ated fell as 40 per­cent were ei­ther tem­po­rary or hos­pi­tal­ity-in­dus­try jobs. I am sure that good peo­ple are work­ing hard at those jobs, but the re­al­ity is that the wages as­so­ci­ated with those po­si­tions are on the low end and few come with ben­e­fits.

Viewed an­other way, of the 12.8 mil­lion un­em­ployed in Fe­bru­ary, roughly 57 per­cent had some col­lege as their high­est level of ed­u­ca­tion. It comes as lit­tle won­der then that there is high mis­match be­tween the skill sets that em­ploy­ers need and what is to be had in the un­em­ployed tal­ent pool.

The mis­lead­ing mes­sages con­tin­ued this week in the form of Fe­bru­ary re­tail sales, which were up 0.9 per­cent, ex­clud­ing au­tos. Of the com­po­nents that con­sti­tute re­tail sales, the sec­tor that rose the most was gas sta­tions — a re­flec­tion of higher pump prices. At the end of Fe­bru­ary, the av­er­age price for a gal­lon of gas was $3.72, up from $3.39 at the end of Jan­uary — an in­crease of 10 per­cent. To me, that falls into the camp of good news/bad news: Yes, re­tail sales are up, but only be­cause con­sumers are pay­ing more to fill their tanks.

As we learned Thurs­day, pro­ducer prices rose 0.4 per­cent in Fe­bru­ary com­pared with Jan­uary and were led by en­ergy prices, up 1.3 per­cent for the month. I of­ten find that the year-on-year com­par­i­son tells a more re­veal­ing story. To that end, the Fe­bru­ary pro­ducer price in­crease rose 3.3 per­cent over the past 12 months. Although that is slower than in re­cent months, it still points to in­fla­tion.

Thus I think the far more im­por­tant in­di­ca­tor to watch is Fri­day’s con­sumer price in­dex. As Fed­eral Re­serve Chair­man Ben S. Ber­nanke said last month, the will­ing­ness of house­holds to spend will be key to the pace at which the econ­omy ex­pands in com­ing quar­ters.

De­spite the pos­i­tive spin be­ing put on some of the head­line num­bers, econ­o­mists have started ad­just­ing their out­looks to re­flect the un­der­ly­ing data. Gold­man Sachs re­cently cut its gross do­mes­tic prod­uct growth fore­cast for the cur­rent quar­ter to 1.8 per­cent from 2 per­cent, while Bank of Amer­ica low­ered its fore­cast from 2.2 per­cent to 1.8 per­cent. Although Jpmor­gan Chase has main­tained its 2 per­cent growth fore­cast for the first quar­ter, the firm noted that down­side risks ex­ist given soft re­ports on con­sumer and cap­i­tal spend­ing.

The U.S. is not the only econ­omy where growth fore­casts have been ratch­eted back. China re­cently cut its 2012 GDP fore­cast to 7.5 per­cent. Although that is head and shoul­ders above the 2 per­cent fore­cast for the U.S. econ­omy this year, it is the slow­est rate of growth in China in roughly a decade. Also mak­ing fore­cast cuts were South Africa, Tai­wan and Lithua­nia, among oth­ers. Euro­pean Cen­tral Bank of­fi­cials have con­firmed a Jan­uary In­ter­na­tional Mon­e­tary Fund fore­cast of a “very mild re­ces­sion” this year, and only mod­est growth next year. Econ­o­mists polled by the Econ­o­mist mag­a­zine are pre­dict­ing that only Ger­many and Switzer­land will de­liver eco­nomic growth this year, while Bel­gium, the Nether­lands, France, Italy and Spain all con­tract.

With the stock mar­ket touch­ing new highs this week, one has to won­der how long it will be be­fore re­al­ity catches up for in­vestors. While wait­ing for that, I’m go­ing to try to un­der­stand the dif­fer­ence in Fed-speak be­tween what it pre­vi­ously fore­cast — “mod­er­ate” eco­nomic growth — and the up­dated fore­cast re­leased this week call­ing for “mod­est” growth.

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