If you’ve been fixated on the tribulations over health care reform or immersed in musings about your favorite March Madness contender, you probably haven’t noticed.
The economy appears to be on the upswing.
Over the past four to five months, the signs have gotten “less bad.”
During the height of the recession, the economy was hemorrhaging jobs at the rate of 600,000 per month. Most analysts believe the U.S. Labor Dept. report due out Friday will show that the economy created 190,000 new jobs during March.
While many may be related to temporary hiring around the 2010 Census, the anticipated report is leading to a burgeoning sense of optimism. Although investor attitudes remain tepid, the S&P 500 will likely show a gain of 5.6 percent for the month of March.
Last year, as the Fed’s printing presses worked overtime to flood the economy with currency, the Royal Bank of Scotland was predicting the last days of the almighty dollar. As the comparative numbers pour in, it seems the obituary was nothing, if not premature.
This Is a Turnaround
Global sentiment toward the dollar is shifting. The dollar is on its best run since 2008. It will be further invigorated as the Federal Reserve stops printing money and raises borrowing costs amid predictions the U.S. economy will recover twice as fast as either Europe or Japan.
Twelve months ago, the Dollar Index began to slide after rising 21 percent in the previous nine months, the quickest gain since 1981. Then the Fed began to expand its quantitative-easing program, with $1.15 trillion in debt purchases to shore up credit markets. This prompted the dollar to decline 14.9 percent against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona in nine months, the fastest drop since 1987.
Over past month, the U.S. dollar has posted significant gains against all the major currencies, including the euro, yen and pound. This initial rally was sparked by the Greek debt crisis, and now is being fueled by concerns that the euro-zone could face it first default or worse, an unraveling of the entire trading bloc.
Why the Sun Shines Even Brighter
Plumping prices at the pump may leave many of us feeling cranky, but to economists, it’s another indication that the demand side of the economic equation is starting to stabilize. The alternative is the persistent and grinding deflation that has continued to grip Japan, where consumer prices have continued to fall. In response, Japan’s central bank will be compelled to continue its credit easing bias, a move that will further weaken the yen.
The psychological effect of a positive jobs report cannot be underestimated. After months of consistent declines, even the slighted nudge forward in employment has propelled a positive uptick in both consumer and investor confidence.
Commodity prices are mostly up across-the-board, led by advances in oil and copper. Despite the turmoil in Greece, and to a lesser extent in Portugal and Spain, there seems to be a sense among manufacturers here and abroad that as the economy recovers, supplies will quickly tighten. Consequently, even though the greenback has steadily strengthened, dollar-denominated commodities like oil and copper have continued to rise.
Although Americans may be anxious about swelling debt undermining our solvency, the international view of our economic prospects is remarkably more sanguine. With the Fed poised to raise interest rates several months before either of its European or Japanese counterparts, the capital inflows into the U.S. economy surprise even the dourest fiscal forecasters.
We’re not yet out of the woods, but it’s getting easier to see the trees and sprouts in the economic forest.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
