Economic Outlook: Glass reaches half-full

By ANTHONY HALL, United Press International  |  Jan. 10, 2011 at 10:37 AM
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The Organization for Economic Cooperation raised its expectations Monday for economic growth this year.

The research group that is based in Paris and represents 33 nations said its headline index rose to 102.8 in November, 0.2 points higher than the previous month, and that "China, the United States, France and Japan show clear signs of accelerating economic activity while (the index) for Russia points strongly to steady expansion."

The improved forecast, at the starting week of a new corporate reporting season on Wall Street, includes steady performances in Germany, Canada, Britain and Italy, The Wall Street Journal reported.

The line of economists calling the glass half full has grown in recent weeks.

On Friday, Federal Reserve Chairman Ben Bernanke indicated he was more optimistic.

President Barack Obama is assembling a new team of advisers that looks more pro-business than his previous staff, which had a populist but hardly popular financial reform bill to push through Congress.

Fundamentals shift slowly, however, and Friday included news that the U.S. unemployment rate had dropped from 9.8 percent to 9.4 percent due, discouragingly, to more people dropping out of the workforce -- more than 200,000 -- than had found new jobs -- about 100,000. Corporations, essentially, are still playing chicken, holding back on expansion until the green light stops flickering.

Unemployment is a concern, but so is inflation, which will likely not show up in fourth-quarter 2010 reports as much as it will in the first quarter this year.

The implications are deep. U.S. corporations are holding onto a record $2 trillion in cash, but cash is not so easily spent. As anyone who owns a trust fund knows, you can't spend down your principle, so the cash in corporate coffers often has to produce more cash, or profits, so that money becomes liquid again. In Washington, stimulus spending has run its course for the most part, leaving it, finally, to corporations -- if anyone is to continue priming the pump -- to take over from here.

The other piggy bank left untapped is China, which reported a declining trade surplus in 2010, off nearly 7 percent from 2009.

"There is some sign of rebalancing," UBS Securities economist Tao Wang told the Journal. But that offers preciously small hope for Obama to count on a week before a scheduled meeting with Chinese President Hu Jintao.

The 41 percent rise in imports in China in 2010 reflects both a jump from a decidedly depressed figure the year before and a sizable increase in prices for commodities, rather than a bulking up of new purchases.

Secondly, Chinese exports rose to a record in 2010, climbing 32 percent, creating a surplus of $120 billion. Comparatively, China's surplus in trades with the United States was $118 billion, the Journal reported.

Thirdly, China made little progress toward its pledge to allow its currency to appreciate. After months of ignoring the issue, then faintly promising something would be done, China promptly waved off the idea last summer.

By the end of the year, the renminbi rose 3 percent against the dollar, between 17 percentage points and 37 percentage points less than it should have, depending on various estimates.

In international markets Monday, the Nikkei 225 index in Japan rose 0.11 percent and the Shanghai composite index in China lost 1.66 percent. The Hang Seng index in Hong Kong fell 0.67 percent and the Sensex in India dropped 2.38 percent.

In Australia, the S&P/ASX 200 added 0.15 percent.

In midday trading in Europe, the FTSE 100 index shed 0.43 percent while the DAX 30 in Germany slid 0.9 percent. The CAC 40 index in France dropped 1.34 percent and the Stoxx Europe 600 index

lost 0.65 percent.

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