Mixed Signals for the Global Economy

The lackluster global economy is now going on its fifth year and new information suggests that it is still a series of ebbs and flows. Economists’ predictions about the United States’ fourth quarter growth was off by over a percent and the U.S. experienced a contraction of the economy for the first time in a few years. The unemployment rate ticked up .1% to 7.9%, not the kind of news a recovering economy wants.

If you travel across the Atlantic, things do not seem much rosier. The Spanish unemployment rate now tops 25% and is even worse among the country’s youth. The IMF expects the Spanish economy to shrink about 1.5% and Italy’s to shrink another 1%. The jobless rate there is teetering at 11%. With so many economies trending downward, how is the economy supposed to sustain its recovery?

There are still reasons for optimism. The United States 2012 job figures have proven to be better than estimated, adding an average of 181,000 a month (the original estimate was 153,000). Payrolls are still not rising fast enough but considering the shrinking of the economy in the fourth quarter, having higher than previously estimated job numbers for all of last year is a step in the right direction.

Even in Europe, where good news has seemed to be absent for the majority of the past four years, there is reason for slight enthusiasm. Governments who seemed on the verge of bankruptcy just a few short months ago are backing away from the ledge. Bond yields have fallen to sustainable levels in some of the countries hardest hit countries (i.e. Spain and Italy). Also, it seems that Europe is ready to abandon the policy of austerity as one that will fix their problems. The IMF chief economist, Oliver Blanchard, wrote that they “significantly underestimated” the impact austerity measures would have and seemed poised not to repeat their mistakes.

Taking all of this into consideration there is still much that needs to take place before the global economy can return to sunny days. It would, however, be a mistake to assume that we are not on our way. There will be tough days and decisions ahead but mixed signals are better than none.