Tuesday started off the year with a litany of economic data and some new political jostling in the US. Following is a brief roundup.
Germany’s unemployment rate fell to 6.8% in December—a record low for reunified Deutschland. Good news for Germans, to be sure. But is it evidence Germany’s defying peripheral Europe’s sovereign debt crisis, a sign of a two-speed eurozone or something else?
Well, given unemployment is such a late, lagging indicator, December’s data merely confirm what we already knew: Germany’s economy has grown lately, and with that growth came more employment opportunities. Firms profited, expanded and hired. But unemployment isn’t forward-looking, so December’s strength doesn’t have any crystal-ball insight into 2012.
It does, however, suggest that if the eurozone enters recession, it’s not certain all countries in it will contract. Germany’s record-low unemployment came as aggregate eurozone unemployment reached 10.3% and Spain’s jobless total reached a 15-year high. In our view, that doesn’t signal a permanent divide between Europe’s core and periphery. Rather, the eurozone is a 17-speed (not 2-speed) machine, and even the peripheral nations don’t move in lockstep—and it does illustrate pockets of strength and weakness persist.
Eurozone GDP, released later this month, may tell a similar story. Whether the broader eurozone grows or shrinks a bit, individual countries will likely diverge, with some perhaps weathering the storm better than others.
It appears manufacturing in the United States continued to surge last month. The ISM index hit 53.9 in December (anything above 50 generally signals expansion)—better than expected and marking a six-month high. The gain was predicated on improvements in production, employment expansion, new order growth and expanding import figures—all underscoring continued US economic strength.
However, talk of US manufacturing’s death persists—especially as the US election season kicks off (more on that later). But the US still leads the world in manufacturing! It’s just that increases in productivity and technology allow us to produce more with far fewer resources—hence, employment in the sector is relatively declining as it has been for decades.
What’s more, as the world has shifted to a more services-oriented economy and output has grown overall, manufacturing’s share as a percent of global GDP has declined for decades. Is that bad? Consider: Prices for manufactured goods have also declined materially, while household incomes have risen relatively overall. These factors result in a much higher standard of living globally today—something we can all cheer.
... And They’re Off!
The US election year also got off to an early start Tuesday with the Republican’s Iowa caucus. But while it certainly generates ample media fodder, it’s important to remember the Iowa caucus isn’t a perfect harbinger of the primary’s outcome—and it certainly isn’t terribly indicative of who wins the general election. Consider: George W. Bush and Barack Obama were the only non-incumbent winners of the Iowa caucus to go on and win the general election. And George W. Bush is the only candidate in history to win Iowa’s Ames Straw Poll, the Iowa caucus, his party’s primary and the general election. Meaning overall, the various primaries’ results are historically all over the map—and in reality, the ultimate Republican primary winner and the general election winner (whether they prove one and the same or not) have a long way to go before even coming close to declaring victory.
So while some may attempt to extrapolate from Iowa’s winner to a Republican nominee to a general election winner to a market or economic response (and beyond), such extrapolations are a touch premature at best.