China’s consumer inflation reached a 20-month low as it increased only 3.2% in February. The data indicate that a number of new trends have taken hold in the People’s Republic. The first is that a drop in manufacturing has slowed the demand for commodities. The second is that, for some reason, food prices are down. The third, and most troubling reason for the political leadership, is that new estimates of slow growth in gross domestic product are accurate and perhaps understated. China needs some measure of strong growth to support its new middle class, which is critical to the consumer spending that is supposed to offset slowing export activity. And consumer spending is based on the ability of workers to get higher wages. That fight will be harder to win with an economy that is no longer red hot.
A Greek Bailout
The Greeks finally have all of the pieces of their bailout in place. The International Monetary Fund and European Union have agreed that austerity is in place, to the extent that it will lower deficits and, at some point in the distant future, the national debt. The European Central Bank has provided support as it pushes money into the banking system, some of which is presumably used to buy sovereign debt of some of the region’s financially weakest nations. The last brick in the bridge was an exchange by private investors of old Greek bonds for new ones. There has been resistance because the value of the new paper is about 30% of the old. The private holders have tried to hold out for better terms. Circumstances have convinced almost all of them that an “unorderly default” would make their investments worth nothing. At this point, more than 95% of these private holders have agreed to the new terms.
Senate Rejects Keystone XL
The Senate rejected a bill to start construction of the Keystone XL pipeline right away. The Obama Administration has put the project on hold. The cost of the infrastructure would be well over $7 billion. And it almost certainly would add tens of thousands of jobs in the area where the pipeline will but constructed, between central Canada and Texas. Environmentalists say the pipeline poses a risk to wildlife. The Republicans will use the rejection of the project as an example of the president’s unwillingness to add new energy sources and projects that will create jobs. The Democrats can raise the specters of Deepwater Horizon and the Exxon Valdez.
February Jobs Report
There will be a debate all day and into tomorrow about what the February jobs report means, no matter what the number. If it is below the expected 200,000, economists will say the economy has slowed — perhaps because of gas prices or a failure to cut payroll taxes more. If the number is much higher than expected, many experts will say the recovery is now complete and gross domestic product will be up 3% or better for the balance of the year. Others will say that the only reason for an improvement is that cold weather, which usually settles in across the norther tier of states in winter, never materialized. Even good news has its detractors.
Douglas A. McIntyre
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