You wouldn’t know it from today’s stock market, which as of this writing is off nearly 200 points. But the daily numbers continue to show an economy that is stronger than most folks think.
Today, for example, initial jobless claims fell to 388,000 — the lowest level in seven months. And the Philly Fed manufacturing index, which translates to 53 on an ISM basis, shows a very strong employment component.
Earlier in the week, the index of industrial production beat estimates with an especially strong reading on business equipment. That spells strong capital-goods investment, itself a job creator.
Retail sales in October also beat estimates, and are rising over 7 percent against year-ago. Both producer and consumer price inflation dropped slightly in October.
Smart economists like John Ryding and Conrad DeQuadros are predicting 3 percent real GDP for Q4. Another luminary, Joe LaVorgna, thinks GDP could actually be 4 percent for the quarter ending in December.
All these better readings continue to clash with market pessimism over Europe’s debt and banking problems. Today on CNBC, however, St. Louis Fed president Jim Bullard said the European problem will be contained, and that it won’t have much effect on the U.S. economy.
And eminent economist Art Laffer believes the new Italian government run by Mario Monti is putting together a pro-growth economic plan to extend the retirement age of public workers, knock out 300,000 government-sector jobs, overhaul the tax system, and privatize state-owned properties. Laffer believes Monti, the former European commissioner for taxes, favors pro-growth reform and simplification. Laffer also thinks Germany will knock its budget deficit under 3 percent, with spending cuts combined with a small tax cut.
In other words, the European story may not be quite as bad as the bond-market vigilantes believe.
There’s no question that the Eurozone is close to recession, and that many of its members still have massive work to do. They need to live within their means, thwart the social-welfare entitlement system, and curb government-union excess. Plus there’s the need for flatter-tax simplification to promote growth.
But I can’t help but think that whatever the state of decline in Europe may be, it is the U.S. that ultimately will benefit. Despite the class-warfare mistakes coming out of Washington and a weak-kneed supercommittee, political regime change is coming. Meanwhile, the U.S. economy is more resilient and perhaps even stronger than people think.