Economic spot-check: What is the letter economists fear most? For some, it is the U that describes a recovery that is painfully slow to arrive. But for others, it is the W of a recovery that at first seems promising but then turns into another decline. Recent news has brought the dreaded letter to mind. Just a fortnight ago, the Breakingviews.com Economic Spot-check was 2.6 on a scale of one to five. It had finally moved closer to Stability than to Slow Decline. But after two weekly declines, the most recent reading was 2.3.
US car sales collapsed after the end of a government subsidy programme and companies – and London taxi drivers – are still cautious about investment spending. But the biggest problem is in the labour market. The pace of job destruction picked up in the US and the unemployment rate rose to 9.8 per cent there. Europe is hardly better. That’s bad for consumption, because it’s not just the unemployed who cut back on spending. Workers who feel their jobs aren’t secure will also be thriftier.
Such restraint might be an admirable reversal from the previous borrow-and-spend mentality, but it also threatens to make the next stroke on the economy graphs go in an undesired downward direction.