Wednesday, March 4, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Why global turmoil hasn’t sunk US markets. Yet.

By
From page B6 | August 16, 2014 |

NEW YORK — Europe appears on the brink of another recession. Islamic militants have seized Iraqi territory. Russian troops have massed on the Ukraine border, and the resulting sanctions are disrupting trade. An Ebola outbreak in Africa and Israel’s war in Gaza are contributing to the gloom.

It’s been a grim summer in much of the world. Yet investors in the United States have largely shrugged it off — so far at least.

A big reason is that five years after the Great Recession officially ended, the U.S. economy is showing a strength and durability that other major nations can only envy. Thanks in part to the Federal Reserve’s ultra-low interest rates, employers have ramped up hiring, factories have boosted production and businesses have been making money.

All of this has cushioned the U.S. economy from the economic damage abroad. And investors have responded by keeping U.S. stocks near all-time highs. Not even reports Friday of a Ukrainian attack on Russian military vehicles unnerved investors for long, with blue chip stocks regaining nearly all their midday losses by the close.

“We’re in a much better place psychologically,” says Mark Zandi, chief economist at Moody’s Analytics. “And it’s allowing us to weather the geopolitical threats much more gracefully.”

Still, the global turmoil comes at a delicate time.

China, the world’s second-biggest economy, is struggling to contain the fallout from a runaway lending and investment boom that’s powered its growth since before the 2008 financial crisis. The economies of Japan and Germany, the world’s third- and fourth-largest, shrank in the spring. So did Italy’s.

It might not take much — an oil-price spike, a prolonged recession in Europe, a plunge in business or consumer confidence — to derail the global economy.

Here’s a look at the strengths and weaknesses of the U.S economy and others, and why the calm in markets may or may not last:

STRENGTHS:

— MORE JOBS

Hiring in the United States has surged in the first seven months of this year.

Monthly job gains are averaging a solid and steady 230,000, based on government figures. That’s roughly an average of 35,000 more jobs each month compared with last year.

Fewer people are applying for unemployment benefits. And fewer new hires are working as temps. Both trends suggest stronger job security.

Economists say the cumulative effect of all those additional paychecks should propel growth and help insulate the U.S. economy from trouble abroad.

Though low-paying industries account for much of the hiring, many economists foresee more jobs coming from higher-wage industries such as construction, engineering and consulting.

Zandi expects monthly job growth to accelerate to an average of 275,000 sometime next year.

— RECORD PROFITS

Earnings at companies in the Standard and Poor’s 500 index are on track to jump 10 percent in the second quarter from a year earlier, according to S&P Capital IQ, a research firm. That would be the biggest quarterly gain in nearly three years.

That news has helped the S&P 500 index climb nearly 6 percent this year, extending a bull market into its sixth year. The gains have been remarkably steady, too. The stock market hasn’t suffered a “correction” — a drop of 10 percent — in nearly three years, twice as long as is typical.

Still, some markets outside the U.S. are falling.

Japan’s benchmark Nikkei 225 is down 6 percent this year. Germany’s DAX has lost nearly 5 percent, and France’s CAC 40 is down 3 percent.

At the same time, global investors have been pouring money into U.S. Treasurys, long seen as a safe bet in troubled times. The yield on Treasury notes maturing in 10 years, which falls when demand rises, hit 2.3 percent on Friday, its lowest level in more than a year.

Christine Short, a director at S&P Capital IQ, worries that more grim news from abroad could send U.S. stocks tumbling. “Markets are ripe for correction,” she says. “The only question is, What is the catalyst?”

— HELP FROM CENTRAL BANKS

The Fed has been paring its pace of bond purchases and will end them altogether this fall. The purchases have been intended to hold down longer-term rates and prod consumers and businesses to borrow and spend. But the Fed has stressed that it will keep short-term rates at low levels even if unemployment reaches a level usually linked to rising inflation.

Before raising rates, the Fed wants to see “the whites of the eyes of a real recovery and wage growth,” says Diane Swonk, chief economist at Mesirow Financial.

Many economists project that the Fed won’t lift short-term rates until mid-2015. Another plus for economies, at least in the short-term: The Fed’s low-rate policies have influenced other central banks.

The Bank of Japan is buying bonds to stimulate growth and the European Central Bank is facing calls to do so itself.

THREATS:

— FOREIGN EXPOSURE

Though the U.S. economy has managed so far to withstand the economic and geopolitical turmoil abroad, it isn’t immune to it.

And the bad news kept coming this past week.

The 18-country eurozone, a key region that emerged from recession last year and accounts for nearly a fifth of global output, failed to grow at all in the second quarter of the year. “The European recovery is faltering,” says Jack Ablin, chief investment officer at BMO Private Bank.

Escalating tension between the West and Russia isn’t helping. Exports from the eurozone to Russia account for less than 1 percent of the region’s economic output. But Germany, Europe’s largest economy, is vulnerable. It gets nearly all its natural gas from Russia. The German economy contracted 0.2 percent in the second quarter compared with the previous quarter. And business confidence in Germany is plummeting.

Tom Stringfellow, chief investment officer at Frost Investment Advisors, says the tit-for-tat sanctions between the West and Russia over Ukraine could push the eurozone over the edge. “Unless that is resolved quickly, you could see another recession,” he says.

Nearly half of revenue in the companies in the S&P 500 comes from selling abroad. And exports contributed 14 percent of U.S. economic output last year, up from 9 percent in 2002.

— WHERE ARE THE SHOPPERS?

Retail sales stalled in the United States last month. Wage growth has failed to surpass inflation, leaving many consumers unwilling or unable to spend more. Sales at auto dealers and department stores fell in July.

Wal-Mart this week cut its profit outlook. Macy’s trimmed its sales forecast.

“Consumers are finding they can live without a lot of the stuff they used to buy automatically,” says Joel Naroff, president of Naroff Economic Advisors, in a research note. “Right now, people are just not parting with their hard-earned funds.”

It’s not just U.S. consumers who are spending less. Japan’s economy cratered in the April-June quarter, due to a sales tax hike. The economy there shrank 6.8 percent from a year earlier. And shoppers face another sales tax increase in October 2015.

— OIL SPIKE

Will fighting in Iraq and Ukraine upend global energy markets, and raise the cost of filling your gas tank and heating your home?

Europe is worried because it gets much of its natural gas from Russia. And Iraq is the second-biggest OPEC oil producer. Before dropping last month, crude oil prices hit a 10-month high in June on news of victories by Islamic State fighters.

In the United States, gasoline is averaging $3.47 a gallon, according to AAA. That’s down 7 cents from last year. But the benefits of cheaper gas could be erased if supplies were disrupted. Consumers would be hit by what economists consider the equivalent of a tax increase.

One positive to come out of the dire economic situation? Because so many countries are struggling to grow, demand for oil is restrained. On Tuesday, the International Energy Agency lowered its forecast for global demand this year.

 

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

  • Recent Articles

  • Enter your email address to subscribe and receive notifications of new posts by email.

  • .

    Solano News

     
    County honors Meadows Trigueiro as Woman of the Year

    By Kevin W. Green | From Page: A1, 1 Comment | Gallery

    Police shut down Fairfield street after shooting

    By Glen Faison | From Page: A1, 8 Comments | Gallery

     
    Celebrity chef motivates Armijo students

    By Susan Winlow | From Page: A2 | Gallery

     
    State schedules work on Highway 12

    By Kevin W. Green | From Page: A4

     
    Bridge work to shut down Highway 12 east of Rio Vista

    By Kevin W. Green | From Page: A4

    Highway 12 Association to meet this month

    By Kevin W. Green | From Page: A4

     
    Caltrans reschedules work on J-Mack Ferry

    By Kevin W. Green | From Page: A4

     
     
     
    Robots, raucous businessmen set to arrive on big screen

    By Amy Maginnis-Honey | From Page: A7

     
    Teen hit by SUV remains in hospital

    By Glen Faison | From Page: A9

     
    College looks at Measure Q project changes

    By Susan Winlow | From Page: A9

     
     
    Suisun City police log: March 1, 2015

    By Susan Hiland | From Page: A12

    Suisun City police log: Feb. 28, 2015

    By Susan Hiland | From Page: A12

     
    Fairfield police log: March 2, 2015

    By Susan Hiland | From Page: A12, 1 Comment

    Fairfield police log: March 1, 2015

    By Susan Hiland | From Page: A12

     
    Fairfield police log: Feb. 28, 2015

    By Susan Hiland | From Page: A12

    Suisun police log: March 2, 2015

    By Susan Hiland | From Page: A12

     
    Enrollment of non-residents to be capped at some UC campuses

    By The Associated Press | From Page: A13

    .

    US / World

    California survey finds Sierra snowpack far below normal

    By The Associated Press | From Page: A1

     
    California shuts down oil wells to protect ground water

    By The Associated Press | From Page: A10

    Ex-CIA chief admits sharing military secrets with mistress

    By The Associated Press | From Page: A12 | Gallery

     
    72 passengers reach settlements in Asiana crash

    By The Associated Press | From Page: A13

    Netanyahu warns US ‘bad deal’ would put Iran on nuclear path

    By The Associated Press | From Page: A13

     
    Mines, bombs slow Iraqi advance on Islamic State-held Tikrit

    By The Associated Press | From Page: A13

     
    India orders TV stations not to give rapist a platform

    By The Associated Press | From Page: A13

    Health officials perplexed by vaccination skeptics

    By The Associated Press | From Page: A13, 1 Comment

     
    Lawmakers taking another crack at expanding gun checks

    By The Associated Press | From Page: A13

    California lawmakers show wide discrepancy in missed votes

    By The Associated Press | From Page: A13

     
    Agents target industry helping Chinese women have US babies

    By The Associated Press | From Page: A13 | Gallery

    Family of girl declared brain-dead sues Oakland hospital

    By The Associated Press | From Page: A13

     
    US marshals say man killed by Los Angeles police was wanted

    By The Associated Press | From Page: A13, 2 Comments | Gallery

    .

    Opinion

     
    Editorial cartoon: March 3-4, 2015

    By Daily Republic Syndicated Content | From Page: A11

    Minority outreach that works

    By Jennifer Rubin | From Page: A11, 3 Comments

     
    Israelis worry about inequality, not Iran

    By Daniel Gordis | From Page: A11, 3 Comments

     
    .

    Living

    Today in History: March 4, 2015

    By The Associated Press | From Page: A2

     
    Community Calendar: March 4, 2015

    By Susan Hiland | From Page: A2

    Mushrooms are nutrient-packed, with a deep, savory flavor

    By The Washington Post | From Page: B5

     
    Get ready to add white to the rainbow of produce you eat

    By The Associated Press | From Page: B5

     
    Horoscopes: March 4, 2015

    By Holiday Mathis | From Page: B7

    My husband and I want different things in our retirement

    By Kathy Mitchell and Marcy Sugar | From Page: B7

     
    .

    Entertainment

    Apollo to celebrate Holiday birthday

    By The Associated Press | From Page: A7

     
    Oprah’s Chicago studios to close down

    By The Associated Press | From Page: A7

    Fashion week moves Milan to Paris

    By The Associated Press | From Page: A7

     
    TVGrid

    By Daily Republic Syndicated Content | From Page: A8

    .

    Sports

     
    Vanden girls roll, advance to SJS championship game

    By Marcus Lomtong | From Page: B1

    Bumgarner hit hard in spring debut, A’s beat Giants 9-4

    By The Associated Press | From Page: B1

     
    Australian rugby star Hayne signs 3-year deal with 49ers

    By The Associated Press | From Page: B2

     
    Maid: Hernandez messed with security camera after killing

    By The Associated Press | From Page: B2

    Pacquiao big hit so far in Vegas sports books vs Mayweather

    By The Associated Press | From Page: B2

     
    Kings bring back former player Divac in front-office role

    By The Associated Press | From Page: B2

    No ‘floating rubbish’ collection for Olympic sailing venue

    By The Associated Press | From Page: B2

     
    Cal senior Reshanda Gray named Pac-12 Player of the Year

    By The Associated Press | From Page: B2

    Rudy Gay, Kings hand Knicks worst loss of season, 124-86

    By The Associated Press | From Page: B2

     
    Cubs’ scramble on Wrigley Field hits bump when mayor balks

    By The Associated Press | From Page: B2

    Raiders officially release S Tyvon Branch

    By The Associated Press | From Page: B2

     
    Trooper: Fingerprints show victim in Hernandez’s rented car

    By The Associated Press | From Page: B2

     
    Play ball! Quickly! Baseball tries to speed game this spring

    By The Associated Press | From Page: B2

    .

    Business

    Oil glut could soon lead to plummeting prices

    By The Associated Press | From Page: A8, 2 Comments

     
    .

    Obituaries

    Jacqueline Mendes

    By Nancy Green | From Page: A4

     
    Robert C. Thierry

    By Nancy Green | From Page: A4

    Garland (Curly) Henry Tackett

    By Nancy Green | From Page: A4

     
    Otto Vasak

    By Nancy Green | From Page: A4

    John Henry Fechter, Jr.

    By Susan Hiland | From Page: A4

     
    .

    Comics

    B.C.

    By Daily Republic Syndicated Content | From Page: B6

     
    Peanuts

    By Daily Republic Syndicated Content | From Page: B6

    For Better or Worse

    By Daily Republic Syndicated Content | From Page: B6

     
    Sally Forth

    By Daily Republic Syndicated Content | From Page: B6

    Wizard of Id

    By Daily Republic Syndicated Content | From Page: B6

     
    Baby Blues

    By Daily Republic Syndicated Content | From Page: B6

    Baldo

    By Daily Republic Syndicated Content | From Page: B6

     
    Garfield

    By Daily Republic Syndicated Content | From Page: B6

    Frank and Ernest

    By Daily Republic Syndicated Content | From Page: B6

     
    Blondie

    By Daily Republic Syndicated Content | From Page: B6

    Pickles

    By Daily Republic Syndicated Content | From Page: B6

     
    Zits

    By Daily Republic Syndicated Content | From Page: B6

    Beetle Bailey

    By Daily Republic Syndicated Content | From Page: B6

     
    Rose is Rose

    By Daily Republic Syndicated Content | From Page: B6

    Dilbert

    By Daily Republic Syndicated Content | From Page: B6

     
    Get Fuzzy

    By Daily Republic Syndicated Content | From Page: B6

    Crossword

    By Daily Republic Syndicated Content | From Page: B7

     
    Bridge

    By Daily Republic Syndicated Content | From Page: B7

    Word Sleuth

    By Daily Republic Syndicated Content | From Page: B7

     
    Cryptoquote

    By Daily Republic Syndicated Content | From Page: B7

    Sudoku

    By Daily Republic Syndicated Content | From Page: B7