Ticking off the economic checklist

Japan's auto giant Nissan Motor employees assemble the company's electric vehicle Leaf at the Oppama plant in Yokosuka city.

JEREMY HOBSON: The Japanese Earthquake and Tsunami that hit the country's industrial north back in March has been cited as a major impediment to global economic growth ever since. Well this morning, we got some evidence that Japanese manufacturers are recovering strongly. The country's economy shrank by less than expected. So is it time to check Japan's economy off the list of worries? For that, let's bring in our Senior Business Correspondent Bob Moon. Good morning, Bob.

BOB MOON: Good morning, Jeremy.

HOBSON: Well, Bob, let's start with Japan. The country's economic output we found out today, actually shrank by 0.3 percent. That doesn't sound very good if the economy is still contracting.

MOON: Maybe, but you have to look at that Japanese gross domestic product number in relative terms, Jeremy. The economy there isn't shrinking anywhere near as much as had been expected, and that suggests Japan just might be on the cusp of a recovery from the twin disasters that battered the country this spring. So that might be one item that investors can start to check off their list.

HOBSON: OK, let's check that out now with Adolfo Laurenti who is the deputy chief economist with Mesirow Financial and he joins us from Chicago. Adolfo, can we check Japan off the list? Can we stop worrying about Japan?

ADOLFO LAURENTI: It's important data. We have been monitoring very closely Japan because of the situation of the earthquake -- we had major concerns about rolling blackouts that mailed back production during the summer -- that does not seem the case. So, maybe it's time to take Japan off the list of our major worries.

HOBSON: OK, that's one. But the thing that really rattled the markets, Bob Moon, was the ratings agency downgrade on U.S. debt. That hasn't gone away.

MOON: Yes, but there was already talk that it was being priced into the market before the news hit, and certainly after a week you'd think it ought to be priced in by now which means the market has taken care of pricing of certain stocks. It wasn't so much of the downgrade as potential fallout that sparked worries we could be headed back into a recession, though. And then last Thursday, we got the weekly numbers on claims for unemployment benefits, which slipped below 400,000 for the first time in 17 weeks. And if Wall Street didn't check that off its list in ink, it did seem to at least pencil in a hopeful check mark, there.

HOBSON: A hopeful check mark, Adolfo Laurenti, on the U.S. economy?

LAURENTI: It may be the case. The key post in mind, the Federal Reserve came out as winging. They have committed to low interest rates, up to middle 2013, and they also have hinted that they may try to do a third round of quantity easings. So, once you keep in mind the real state of the economy, the response of the policy makers, things in the United States may not being as bad as we thought.

HOBSON: Not as bad as we thought, but Bob, there is the big question of the European debt crisis. You can't tell me that's ready to check off the worry list, can you?

MOON: No. That's a tough one, not so easy. And that's one we definitely need to keep a wary eye on. Tomorrow we get the latest reading on Spain's economy, which is one of those countries that's been under a cloud, the fourth-largest economy in Europe. And tomorrow, German Chancellor Merkel and French President Sarkozy are having an emergency session to discuss the situation, so that could offer some reassurances.

HOBSON: Adolfo, what do you think about the European debt crisis? Where are we on that front?

LAURENTI: This morning there are expectations in the market that policy makers will come up with more to ease the concern we had last week, so some early signs so far are positive. But, the structural problems in Europe are still all there, and I think this is a very long-term issue -- it won't be resolved in one week.

HOBSON: So, we'll have to leave one box unchecked on the list. Adolfo Laurenti, deputy chief economist with Mesirow Fiancial, thank you so much.

LAURENTI: My pleasure.

HOBSON: And Bob Moon, senior business correspondent, thanks to you.

MOON: Thanks, Jeremy.

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