Last week: The latest jobs report confirmed how slow the domestic economy is moving, and reinforced consumer nervousness about the lack of any significant near-term improvement. Indeed, The Conference Board Leading Economic Index® for the U.S. has been pointing to slow growth (economic or labor) through the early months of 2011. Consumer spending remains cautious. The latest retail sales data show that only with steep discounts can sales be more than modest. In turn, that raises the question about the profitability of such promotions. Businesses worry about a drop-off in sales, if promotions are trimmed. Indeed, their bigger concern is about the near absence of pricing power. These conditions have been in place for some time and could continue, not just into the early months of 2011, but perhaps right through the year.

THE SITUATION ABROAD

The global economy could be growing at a 2.5 to 4.0 percent rate next year and into 2012. This projection implies that consumer demand and business investment could remain weak enough across the globe to keep trade from accelerating, and thereby boosting overall economic growth. Fiscal stimulus is not capable of supporting better growth since it is running squarely into the brick wall of deleveraging public debt. The absence of policy stimulus and very low inflation help to reinforce relatively slow growth. Commodity producers are certainly not enjoying the kind of increase in prices that fed growth in the first half of 2010. Commodity consumers conversely face weak consumer confidence as well as slow job and income growth. Will all or some of these conditions begin to turnaround in 2012? Perhaps, but it doesn’t look like it will happen in 2011.

FACT OF THE WEEK

The Center for Transatlantic Relations at John Hopkins University reports all but two of the top 20 metro areas, in terms of labor productivity, are in the United States. The exceptions are Luxembourg and Brussels. Perhaps more salient is their finding that the gap between American and European metro areas was gradually closing throughout the 1970s and 1980s. But that record of progress stopped in the 1990s. Nor was the gap closing as the globe slid into recession this decade.

QUESTION OF THE WEEK

Are consumers really saving more or simply paying off debt?

Consumers are doing both. The typical household has limited its spending while consumer confidence remains very weak. The money not being spent is staying in the bank and counted as savings. However, there is yet little evidence that more money is going into IRA or 401k accounts. In addition, the same household budget restraint is holding down the pace of new credit card and other debt. But that’s not all. CardHub.com, a credit-card industry site, calculated that from the start of 2009 through June of this year, $124 billion of credit card balances were simply written off as uncollectable. Keep in mind that revolving credit balances fell by $134 billion over this same time period. A similar pattern probably occurred with respect to the bigger mortgage debt balance. In short, consumers are saving, and paying down debt, and the lenders are writing off what they think will not be collected. The net impact is a very significant rise in the personal saving rate.