Washington » The global economy’s foundations are weakening, one by one.
Already hobbled by Europe’s debt crisis, the world now risks being hurt by slowdowns in its economic powerhouses.
The U.S. economy, the world’s largest, had a third straight month of feeble job growth in May. High-flying economies in China, India and Brazil are slowing, too.
Fears of a global economic downturn have sent investors rushing toward the safest possible investments: U.S. and German government bonds. As a result, the interest rate on the 10-year U.S. Treasury note has hit a record-low 1.46 percent. The rate on the German 10-year bond is even lower: 1.17 percent.
"Treasurys are at 1.46 because people are freaking out," says Mark Vitner, senior economist at Wells Fargo Economics.
The gravest fear is Europe. The most urgent threat is that in mid-June, Greek voters will reject the terms of a $170 billion bailout — which called for painful budget cuts — and abandon the euro. The move could ignite economic and financial chaos as Greek debts shift from denominations in euros to Greek drachmas of uncertain value.
Yet the global economy’s troubles go well beyond Greece. Here’s a look at the global economy’s vital signs:
UNITED STATES »
American employers added just 69,000 jobs in May. Since averaging a healthy 252,000 a month from December through February, job growth has slowed to a lackluster average of 96,000 a month.
On Friday, after the government issued the May jobs report, the Dow Jones industrial average sank 275 points. It was the Dow’s biggest loss since November, and it’s now down 0.8 percent for the year.
The dismal news suggested that the U.S. economy is enduring a midyear slump just as in 2010 and 2011.
Unemployment rose to 8.2 percent from 8.1 percent in May as 642,000 more Americans poured into the work force, and only 422,000 more people got jobs.
The jobs report came out a day after the government said the U.S. economy grew at just a 1.9 percent annual rate in the first three months of 2012. That’s a meager pace nearly three years after the recession officially ended in June 2009. And it’s too slow to generate many jobs or to lower the unemployment rate. In good economic times, the rate would be below 6 percent.
Many U.S. companies are finding it more efficient to invest in machinery, not people.
"We’re not hiring, and we’re not replacing" workers who leave, says Joe Glenn, who runs Glenn Metalcraft in Princeton, Minn.
His sales jumped 40 percent last year. Yet Glenn’s shop has kept employment flat at about 35 workers. He’s added more computer-controlled metalworking machines and robots to load the raw material into them.
"We’re producing as much as we were with a lot less manpower," Glenn says. "And I don’t foresee that those jobs are going to come back."
Other companies are reluctant to hire until they feel more confident that their customer demand will keep growing. Adding to their uncertainty are Europe’s troubles and America’s dysfunctional politics.
For now, some key sectors of the U.S. economy remain positive. Americans are buying more homes, suggesting that the housing market is on the mend. U.S. builders have increased their spending on home and commercial construction.
Auto sales just posted their best May since 2008. Manufacturing activity continues to grow, and so does consumer spending, which drives about 70 percent of the economy.
Borrowing rates for consumers and businesses have never been lower. Tame inflation has given the Federal Reserve leeway to keep interest rates low. And gasoline prices have been sinking. The national average is now $3.61, and experts predict further drops in coming weeks.
Still, unless Congress and the White House reach an agreement by year’s end, federal taxes will jump and deep spending cuts will kick in. Should that happen, the Congressional Budget Office says, the economy would likely fall into another recession.
Given the size of the U.S. economy, further weaknesses could worsen the slowdowns in European and Asian countries that depend on sales to American consumers.
Unemployment in the 17 countries that use the euro is already at 11 percent, the European Union’s Eurostat office reported Friday. It’s the highest rate since the euro was introduced in 1999.
European countries have been struggling with their debt crisis for three years. Three nations — Greece, Ireland and Portugal — have already required bailouts because of unsustainable levels of debt.
Austerity has been the main prescription for the crisis. But spending cuts and tax hikes are causing economies to shrink across the eurozone.Next Page >
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