The latest set of confidence reading in the US should be read with caution. They neither confirm not discount anything. In my book they are still consistent with either reading - one step forward two steps back, or one step backwards two steps forward - of the direction of the recovery:
U.S. consumer confidence took a surprise spill in July as worries over rising unemployment took a heavy toll, the Conference Board reported on Tuesday. The result provided a muted counterpoint to cheerleading from government officials. Treasury Secretary John Snow on Tuesday took time off from a bus tour of the Midwest to tell television network CNBC the economy was "spring-loaded to go."
Not all Americans, it seems, are convinced. The private research group's monthly consumer confidence index slid to 76.6 in July from 83.5 in June. That was the lowest reading since March, when the invasion of Iraq was in full swing, and completely confounded analysts, who had looked for an improvement to 85.0.
The index that measures jobs hard-to-get rose to 33.1 percent from 31.9 percent in June, its highest level since 1994. That mirrored a jump in the national unemployment rate to 6.4 percent in June, also a nine-year peak. Job figures for July are due on Friday, and this poor survey could dent hopes that payrolls will show the first rise in five months. The labor market has stayed stubbornly depressed, even though other recent indicators have shown some signs of life are stirring in the economy.
Source: Yahoo News
The biggest worry still has to be the lack of employment growth, and the impact of this on the output gap as indicated by Bernanke in a piece I posted earlier in the week. Maybe this is a timely moment to go back to a piece's on Brad's Blog that I failed to comment on (probably due to my local obsession with the problems of Bulgaria). The issue in question, the (in the eyes of some) belated decision of the NBER business cycle dating committee to call an end to the recession. If you look through the comments you will find that the majority of the posters are only crying either 'foul' (for political manipulation), or 'stupid' (for being a bunch of tiresome professors). Neither of these perspectives cut any ice with me. I think I understand something about economic processes, and I don't consider these decisions easy. What most people seem to have missed in the more heat than light exchange, is the rather subtle point that Brad draws attention to, that in order to call and end to the recession (which might in fact seem a reasonable thing to do) they had to modify, or at least change the weighting of, their crtieria:
The NBER's Business Cycle Dating Committee has decided that the last business-cycle trough took place in November of 2001. More interesting, they seem to have dropped employment from their list of principal monthly indicators. Their report puts income first, industrial production and sales second, and refers to Macroeconomic Associates's estimates of monthly GDP..
IIRC, it used to be that employment, incomes, sales, and industrial production were more-or-less all given equal weight. It also used to be that those four series tended to have peaks and troughs that were very tightly clustered together. It is because incomes, sales, and GDP are out-of-step with industrial production and very out-of-step with employment that has led to hesitation on the part of the Business Cycle Dating Committee--hesitation that is now resolved.
Source: Semi Daily Journal
Now maybe the hesitation has now been resolved (either for better or for worse, history will be the judge) but the problem that gave rise to it hasn't. Industrial production and employment growth are tracking well below income, sales and GDP. Now this must have some significance, and part, at least, of this significance is to be found in what Roach calls the twin deficit - federal budget, and external trade. With industry busy restructuring and outsourcing to China and other locations, and services also doing what outsourcing they can, the US economy seems to be accumulating an important structural imbalance. The decline of manufacturing industry and some re-locatable services would not be a problem were the decline of these activities to be compensated by the rise of other activities which could pay for this transition. But this is just where the problem arises, what are the new activities in 'tradeables' that can pay for the transition?