money good 88.
(photo credit: )
This week has seen a remarkable juxtaposition of economic and business news. On
the one hand, the “earnings season” opened in the US as several leading
corporations published their results for the second quarter of 2010. In several
instances these were very good, and in most they were much better than the
already positive expectations pumped out by the analysts in the run-up to the
But within this generally positive environment, Intel stood
out by a mile. The world’s leading chipmaker – and as it is usually termed in
the financial media, “one of the bellwethers of the tech sector” – announced the
very best quarter in its entire 42-year history. Not only were profits strongly
up, so were sales, and not only was the second quarter exceptionally good, the
company felt its outlook was also excellent.
In short, the initial
indications from the corporate sector were that things were going well,
well or even stunningly well. Small wonder, then, that global stock
spent the last eight or nine days marching upward and that most analysts
investors are comfortable, if not downright delighted, with the way
In tandem with these announcements from companies, the run of
macroeconomic data relating to last month, the month before or the
completed second quarter continued to churn out from government offices
the world. Let’s ignore the small fry and focus on the two biggest fish
global pond: the US and China.
In the US, the minutes from the latest Fed
meeting showed that the US central bank is lowering its forecast for
year, albeit only slightly at this stage.
This forecast reflects the flow
of data that reflect a steady weakening of the economy. This week the
retail sales, which dropped more in June than had been expected, after
in the preceding months as well. On Thursday, the indexes for
activity in both New York State and the Philadelphia Fed area were both
to have dropped sharply, in the face of expectations that one would fall
marginally and one would rise.
Over in China, the picture is similar. The
country published its second-quarter GDP estimate on Thursday, which
annual rate of increase of “only” 10.3 percent, slightly less than
and well below the 11.9% rate posted in the first quarter. Both retail
industrial production data for June also confirmed the slowdown in the
torrid rate of growth, suggesting that the policy measures taken by the
government in recent months to cool things off have had an impact. This
especially evident in the inflation data for June – all these items were
published on the same day! – which showed a fall from May and hence a
the annual rate as well.
But there is one area where there is no
similarity at all between the US and China, and that is trade. Earlier
week, both countries published their latest trade data, China for June
really are quick off the mark there) and the US for May. Chinese exports
a phenomenal 44% compared to June last year, and its import growth rate
Even discounting seasonal and transient factors, these data show that
growth is still export-led and that it is relying on the rest of the
especially the developed economies, to buy its products.
Nor are the
Americans disappointing them. The US trade deficit for May rose
$42.2 billion, the largest since November 2008. While both imports and
rose, imports did so at a faster pace.
The implications of the trade data
– and the latest months reported are not irregular, rather the opposite –
shocking. They illustrate that the fundamental imbalances that beset the
economy, which in simple terms reflect the fact that China overproduces
underconsumes, while the US massively over-consumes and has lost much of
productive capacity, remain as they were.
The global economic crisis is
now three years old, and fewer and fewer people think it is over, or
be so anytime soon. But it now appears that the most basic problems are
getting better; rather, they are continuing to fester.
The media are
obsessed with Wall Street and take their cue from whether Intel or JP
published good results or not. Meanwhile, out on Main Street, sales are
faltering, jobs are scarce, but people continue to consume, with a
proportion of what they buy coming from overseas. The party can’t last,
making a huge effort to keep going as long as