More jobs, but issues remain

by David Taylor

The US unemployment rate has fallen to 8.9 per cent. That’s great news. In fact the economy created almost 200,000 new jobs. Government jobs were slashed and hours worked have fallen, however we’re seeing the growth in all the right places.
 
The smile turns into a smirk though when you understand how the jobs have been created. The US is struggling with a crippling debt burden. A debt burden funded by China and doing it’s best to warm an ice-cold economy. Under normal conditions, the sheer amount of money thrown at the economy should have produced many more jobs. The newly created jobs are also reliant on a booming Asian economy.
 
Analysts, however, don’t need to worry about Asia in the short term, or even the medium term. Many company executives I have spoken to (especially from the resources sector) are confident in the growth picture. It’s clear their relatively ‘closed’ economy will continue to generate super-normal growth. The issue is that growth in the region has many question marks attached to it – to do with property bubbles, construction spend, and inflation. These issues will have to be addressed at a later point – and hopefully not in the wake of another financial crisis.
 
The other area to consider is Europe. The Europeans have found a temporary solution to their financial woes – bailouts. The more challenging environment will emerge in a few years when governments will be asked to stand on their own two feet. As long as the Euro zone remains afloat though, the western world won’t feel the sting of their debt position.
 
In short, while today’s jobs data is good news, it’s supported by a vulnerable economy, and sits amid a shaky international macroeconomic environment.
 
David Taylor

Disclaimer

The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.