The slowing global economy was the big story this morning. It was front-page news in the Financial Times (FT) and the Wall Street Journal (WSJ), with “IMF cuts global growth forecasts” and “Global Recession Risk Rises,” respectively. Although it didn’t make the New York Times (NYT) front page, it did make the front of the business section, with “IMF Lowers Its Forecast for Global Growth.”

The short version is that Europe continues to tank, China continues to slow, and the U.S. is at risk because of political uncertainty. The IMF is projecting continued though slower global growth, but that depends on a few criteria: Europe implementing the sovereign bond purchase program successfully and navigating its multiple other problems, China achieving a soft landing, and the U.S. not going over the fiscal cliff. A hefty set of assumptions.

Looking at the stories for the past three days, I see several that hit the protectionism meme from a couple of different directions. The first, “China’s ‘New Left’ Gets Louder” from the weekend Wall Street Journal (WSJ), does not initially appear to be a protectionist piece; it deals with the resurgence of Maoist thought in China, in opposition to the current policies that have created, per the story, inequality and social unrest. What suggests protectionism is the inward focus on the Chinese economic model based on international trade, as well as the presence of the New Left at anti-Japanese rallies. The consensus for free trade has come under threat in the West, as I have written before, but there are also other threats arising that come from the left and from exporting countries. When a trend becomes this broad, it can’t be shut down easily by one country or even a group of countries.

Not that most countries, particularly the U.S., are exactly trying to stop the protectionist trend. Another article from the weekend WSJ worth noting, “Parched in the West, but Shipping Water to China Bale by Bale,” talks about how alfalfa is sold to China in the context of a water shortage. Protectionism justified by resource shortages—you will definitely be hearing this again, and not just from the U.S. See also the weekend Financial Times (FT) story “Chinese tourists steer clear of Japan.” As I have been discussing for a while, this is (already) a trade war if we are lucky and a shooting war if we’re not. Another U.S. protectionist story hit the front page of the WSJ with “China Tech Giant Under Fire” and page 2 of the FT with “US businesses urged to shun Huawei over security fears.” Protectionism under the guise of national security is another story to watch for in the future, with technology as the leading edge.

The big story over the weekend was the surprising drop in the unemployment rate to 7.8 percent, which is the lowest it has been during the Obama presidency. Employment growth remained slow, at 114,000 jobs, but the big story there was that the previous two months were revised upward to much better levels than had been initially estimated. The papers had different focuses, as expected. The Financial Times (FT) cut to the chase with “Obama boosted by US jobs figures” and “Jobs report better than expected but labour growth still slow.” The Wall Street Journal (WSJ) led with “Hiring Notches Modest Gains,” followed by “Jobless See Little Improvement in Outlook” (p. A2). The New York Times (NYT) took the opposite tack, with “Jobless Rate Sinks to 7.8%, Its Lowest for Obama’s Term.” Nice to see when the papers wear their hearts on their sleeves.

Surprisingly, the drop in the unemployment rate led to charges, most visibly by Jack Welch, that the government had cooked the numbers. The NYT addressed that directly with “Jobs Report: Cooked or Correct” (p. A17) and “Taming Volatile Data for Jobs Reports” (p. B1); the articles concluded that the numbers were legitimately volatile, not cooked, and explained how the numbers are derived. Apparently, the last time charges like this were widely aired was during the Nixon presidency—an indicator of how wide the political divide is now.

I talked in the previous post on Europe about how the departure of a significant country could lead to the demise of the eurozone. Significant would obviously mean Germany, but also France, Italy, Spain, and, arguably, the Netherlands. These are the five largest economies in the eurozone, which together comprise more than 80 percent of the total economy. To break it down a bit further, Germany is 28 percent of the eurozone economy, France is 22 percent, Italy is 16 percent, Spain is 11 percent, and the Netherlands is 6 percent. Everything else amounts to 4 percent or less—in most cases, much less.

What is striking about this list is that only two of the big five are in good condition, fiscally speaking: Germany and the Netherlands. Combined, they account for 34 percent, or a bit more than a third of the total. All figures are as of 2011, as reported by Eurostat, and obtained from Wikipedia.com.

As I predicted, the papers love a good horse race and have been dying to start the Romney rebound story. It is now well under way, with “Romney dominates glum president” on page 2 of the Financial Times (FT), “Romney Presses Edge After Obama Stumbles” on the front page of the Wall Street Journal, and “Campaign Gains a New Intensity in Debate’s Wake” on the front page of the New York Times (NYT). The consensus is that we now have a competitive race again, and reporters could not be happier.

I read the debate transcript again last night and realized something I didn’t mention enough yesterday—–Governor Romney of Massachusetts was back! The severe conservative of the Republican primaries did not show up; instead, we had a moderate, center-right, successful governor who embraced his own health-care reform plan, bragged of working with Democrats, stated categorically there would be no effective tax cut for the wealthy, and said that regulation was necessary and government had a role to play. One wonders what Paul Ryan thought of all that, not to mention all of the Republican primary voters.

Up the wall of worry

http://www.youtube.com/watch?v=IZJ7VG30tsw 

I admit that I rarely watch speeches or debates live. I prefer to focus on the content, and reading the transcript allows me to do that without being affected by the atmospherics. But the real reason is that I usually end up yelling at the TV when either or both sides make misstatements.

A couple of good things to talk about today for the U.S. economy. The first relates to the generally improving demand environment. I have talked before about the fact that the housing market is getting better; the trend continues today with mortgage applications increasing by 16.6 percent, which is a lot. Cheaper mortgages continue fuel the housing recovery, and the story is not over yet.

We have some more good charts from Pete Essele, data maven in our Asset Management and Research groups, this time about household debt and how we are paying (or writing) it off.