Last Friday night's reading on US unemployment was another reality check for the US economy. Less-than-expected private sector jobs were created and the unemployment rate remained unchanged at 9.1 per cent. It's clear the US is not going anywhere.
What's interesting though is the divergence of opinions out there. There are some analysts that are still optimistic about the prospects of not only the US economy, but also the prospects of many European economies as well. There are others who say ''the end of the world'' is nigh. It's not that some people don't have their facts straight, it's just that everyone's pushing a different agenda. Some will benefit from another deep recession, others will benefit from a strong recovery. Bottom line - don't believe everything you read. Learn what the important economic indicators are and what they tell you about the level of growth being generated in the economy.
The unemployment rate, for instance, is an important indicator, but it's also a 'lagging' indicator - which means it's looking backwards (to the past). It's still an important read though because if it's high, and consistently high, it can be an indication that something is seriously wrong with the economy. America's a current case in point. Business confidence is an example of a leading indicator - it's more about expectations and how business men and women see the future.
It's Australia's turn this week to digest a whole bunch of economic data. Also included is an interest rate decision on Tuesday. It's highly likely the Reserve Bank will keep interest rates on hold. I believe the RBA is out-of-touch with everyday working Australians - but that's for another time. In the meantime, please keep up with the press this week. If you pay close attention, you'll have a much better idea of how our economy is fairing by the end of this week.
One thing you can be very sure of is that we are doing a damn sight better than both the US and Europe. Don't think for a minute though that we don't have our fair share of risks. We are still a multi-speed economy relying too heavily on China. Current political instability is not helping matters either.
Economists and investors need to stay on their toes.
David Taylor
