Martin Vander Weyer Martin Vander Weyer

Any other business | 9 April 2011

Sunny spells, icy showers and an inflationary wind blowing from America

Sunny spells, icy showers and an inflationary wind blowing from America

Daffodils everywhere and the FTSE is back around 6,000. Builders are busy after the frozen winter, it’s ‘business as usual’ again in financial services, and although manufacturing lost momentum in March — exports remained strong, but nervous consumers depressed domestic demand — industry is generally perky. The British Chambers of Commerce expect first-quarter growth of 0.6 per cent or better, reversing the previous 0.5 per fall — and although recovery could be sluggish for the rest of the year, the trend will be in the right direction.

So there’s room for optimism, of a cautious kind. Like April’s weather, the forecast is mixed: sunny spells, icy showers, winds to blow your fence down. Shares have climbed back from a Libya-related dive on news suggesting America isn’t having the ‘jobless recovery’ that was feared: 470,000 private-sector jobs added in two months and official unemployment down a notch to 8.8 per cent.

But I refer you to analysis by US pundit Leo Hindery, who puts the ‘all-in real unemployment rate’ (including marginal categories such as those ‘discouraged’ from seeking work) at 17.7 per cent, leaving America 20 million jobs short of full employment and needing 150,000 new ones per month just to keep up with population growth.

That’s a mighty burden on the locomotive of the West. Observers agree that the measure which has made the most positive difference is quantitative easing (QE), the money-printing device that allowed US interest rates to stay low, depressed the dollar, boosted share prices, eased bank liquidity, helped Obama keep spending — and exported asset-price inflation to the emerging markets where we buy our imported goods. If the American recovery is not as robust as official data implies, there will be pressure for yet another giant round of QE when the current one ends in the summer.

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