Understandably, commentators in the United States have focused on the dismal job figures that emerged Friday. Adding 80,000 jobs in June doesn't even keep pace with demographic growth but it is worth noting that the balance of the economy is improving. The Midwest and central states are doing relatively better, manufacturing employment is showing promise and there are almost half a million fewer government employees than when Obama was elected.
The really grim news comes from overseas where everywhere is slowing at once. New export orders in China fell at their sharpest rate since the recession hit three years ago as import demand fell in both Europe and North America. Local governments are running into their own financing problems and have started selling off those fleets of new BMWs they bought in a burst of over-confidence last year.
New business and new orders both fell in Japan in June. India has stalled. Australia, which has until recently been booming on exports to China, is seeing those Chinese orders drop and seems to be running into its own subprime mortgage problem. In Brazil, both manufacturing and new orders are falling at the fastest rate in eight months.
Europe is the real problem. In Germany, the regional economic powerhouse, output fell at the fastest rate in three years. Export orders have tanked. Only in Greece did export orders decline faster than they did in Germany. Output also fell in Italy, Spain and France in both manufacturing and in services.
So after all the heroic measures by central banks in creating trillions of dollars in new liquidity and the ridiculously low interest rates and all the deficit spending by governments, the global economy is limping along somewhere between flat and low-growth. This isn't where we should be after a recession, particularly with so much pent-up demand in emergent markets.
It also means that there is zero chance of any significant upturn in the U.S. economy for Obama to brag about in his re-election campaign. His boast of doubling U.S exports by 2015 looks particularly hollow, since the world's export markets are best sluggish. Still, with help from the shale natural gas boom and its spinoff effect in petrochemicals, the U.S. economy looks almost healthy by comparison with other developed economies.
"We're the best-looking horse in the glue factory," quipped Doug Holtz-Eakin, a prominent conservative economist who served on the White House Council of Economic Advisers and as head of the Congressional Budget Office. He was speaking at a meeting of the International Accounting Standards Board, where global director, Hans Hoogervorst, summed up the mood by saying, "The best we can hope for is prolonged muddling-through."
The chances of just muddling through looked slim, after yet another "rescue" of the euro at yet another European summit turned out to be yet another damp squib.
With great fanfare and declarations that Germany's Angela Merkel had at last given way, France, Italy and Spain hailed an undated and vague undertaking that Spain's banks could directly tap the euro's pre-agreed bailout funds. The interest rate on Spain's bonds accordingly fell back to an eye-watering 6 percent rather than the lethal 7 percent. That is the rate at which Spain will no longer be able to borrow, the rate that signaled surrender to Greece and Ireland when they had to throw themselves on the less than tender mercies of the European rescue mechanism.
Now the Spanish and Italian rates are creeping back up again. Indeed, Spain's 10-year bonds topped 7 percent again briefly Friday so the markets are evidently not buying the story of a euro rescue. Italy's rates are more than 6 percent again and France was last week hit with unpleasant but not unexpected news; to reach its budgetary targets, President Francois Hollande's new center-left government will have to cut another $49.4 billion from public spending over the next two years.
The best summary of the current euro situation came from Alaska financial analyst Mike Shedlock, who put it this way: "One, the Bundesbank said there should be no banking union until there is a fiscal union. Two, Angela Merkel said that there should be no fiscal union until there is political union. Three, Francois Hollande said that there should be no political union until there is a banking union. And four, the German supreme court will not allow a political union nor a fiscal union, nor a banking union without a German referendum."
None of this means that Obama cannot get re-elected. But he won't be re-elected on a wave of economic recovery and confidence. We shall be lucky if the world simply runs flat for the rest of the year.