Europe is in bad shape.
French car sales were down 12 percent on a year-over-year basis in February and unemployment in the eurozone at a record 11.9 percent in December, said Gluskin Sheff economist David Rosenberg.
Federal Reserve Chairman Ben Bernanke also noted in testimony before the Senate Banking Committee recently that Europe’s recession is a drag on the U.S. recovery. And China too caused a few qualms Friday with disappointing manufacturing numbers.
Yet, although the international news is unsettling, investors have received assurances that they were going to get to continue to drink from the punch bowl Bernanke has been offering to stimulate the economy. He sounded as though he has no intention of stopping his bond-buying stimulus until unemployment is much improved, and he doesn’t see a return to the 6 percent unemployment rate until 2016.
Further, despite the deepening recession in Europe, investors were reassured that perhaps Bernanke’s counterpart at the European Central Bank, Mario Draghi, might lower interest rates and — in effect — offer the punch bowl in Europe too.
Meanwhile, Americans are feeling more confident despite higher payroll taxes, higher taxes on affluent Americans and a sharp 3.6 percent decline in personal income in January. Economist Richard Curtin thinks the improved confidence seen in the Thomson Reuters University of Michigan consumer confidence numbers for February came because people are hearing about job gains.
Consumption grew modestly in January despite less income. Consumers cut back on saving. The savings rate in January was 2.4 percent compared with 6.4 percent in December.
Against that backdrop, economists have been describing the impact of sequestration government cuts as a negative for the nation’s slow-growing economy but not a disaster. And the Institute for Supply Management manufacturing report released Friday showed the resilience of manufacturing activity despite concerns that businesses would decrease spending as government spending cuts loomed.
Factory activity in February grew at the fastest pace since June 2011, or the period that preceded the government’s debt ceiling debate blowup in 2011.
Gail MarksJarvis is a Chicago Tribune personal finance columnist. Email her at firstname.lastname@example.org and follow her on Twitter at twitter@gailmarksjarvis.