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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

September 30, 2010 at 9:45 AM

Three quarters in, and economy’s still sending signals of fragility

As the third quarter slouches across the finish line, many of the worst fears of early summer weren’t realized. Deflation did not break out. A double-dip recession did not happen. The Eurozone did not collapse. Commercial real-estate’s sickness did not become a worse drag on the economy.

On the other hand, no magic optimism rescued the labor market. Unemployment remained acute, particularly for younger workers, minorities, older workers who had lost a job and those in many distressed industries. Five unemployed workers are chasing every opening. In addition, the weak recovery is sending more people into poverty and income inequality, which was already at levels not seen since the 1920s, is increasing. The real pain and general anxiety is creating an unstable political environment even as it seems to paralyze political leaders from meaningful action.

The Dow rose some 8 percent in September (we’ll see how it ends the last day of the month). Bullish analysts saw it as a sign of fresh life in the expansion. Other observers, also using a word with “bull” in it, pointed out a fresh infusion of money from the Federal Reserve, which was mainlined into equities via low interest rates and was no real vote of confidence in the economy. Interestingly, or ominously, gold stayed above $1,300.

Indeed, the third quarter saw remarkable stasis on many fronts. State and local government shortfalls, and resulting cutbacks, may please some ideologues but from a purely economic standpoint they mean more joblessness, less investment in infrastructure, human capital and education, and more pain for private-sector vendors that depend on government contracts. Housing keeps reminding Americans it ain’t coming back as the magic piggy bank. Foreclosures, weak wages, etc. remain a problem.

The departure of Larry Summers as President Obama’s chief economic adviser was announced. He was everything a big banker, Wall Street titan, private equity player or corporate CEO could have asked for in that job (Obama as socialist; yeah, sure). For those who hoped for real reform and accountability from the greatest financial collapse since the Depression…not so much. I’m sure his successor will be equally Rubinesque.Great reset? Nah…

BP finally seemed to cap its disaster in the Gulf of Mexico, and corporate finally made some heads roll. The event quickly exited the brains of television-addled Americans, and with it any sense of the difficult energy choices that await us, that have been merely put on slow-walk because of the slow economy.

While America struggles, China continues to power ahead. Predictions of a bubble crash and other assorted trouble didn’t come true. A measure of China’s growing influence was not only it reaching the status of the world’s second largest economy, but forcing Japan to back down over a territorial dispute involving some small islands. Unlike the ongoing costs of America’s military imperial commitments, China’s power is exerted through the world economy. And this with China still held back by widespread poverty and environmental problems.

Seattle avoided fresh shocks, although it faces government shortfalls and cutbacks, as well as less severe versions of the jobs, housing and capital availability issues facing all American metros. Microsoft stock came off a little better than the beginning of the quarter. Similarly, Boeing shares shot up in August, then sagged without much September lift. Starbucks and especially Amazon joined in the September rally. Bank failures eased a bit but nobody is declaring the risks over for community institutions.

Indeed, the risks to what at best is a fragile and highly uneven recovery remain.

Today’s Econ Haiku:

A planet just found

Might have the stuff to hold life.

What about bankers?

Comments | More in, Auto industry, Banking, Deflation, Dollar, Eurozone, Federal Reserve, Global economy, Housing, Income/living standards, Jobs/Unemployment, Microsoft, Starbucks, Stock market


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