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Mixed messages from the U.S. economy

Steve Chiotakis Dec 15, 2011

Steve Chiotakis: The number of people who last week sought unemployment benefits for the first time fell to 366,000 — that is the lowest level since May of 2008. Couple that with a spending stalemate in Washington, and the debt crisis that’s at full throttle in Europe, and what does that tell you — what kind of picture does it give us — about the global and the American economies?

Tony Crescenzi is vice president and market strategist for PIMCO, which is the world’s largest manager of bonds and he’s with us right now. Hey Tony.

Tony Crescenzi: Hi.

Chiotakis: We saw jobless claims today fall to their lowest level in, gosh, three and a half years. I mean, is the jobs picture turning around?

Crescenzi: Well, there are numerous labor market indicators that seem to suggest there’s been an acceleration in labor demand. Consumer confidence numbers are higher. The small business organization — the so-called NFIB — said yesterday that optimism is a bit higher and hiring plans had picked up.

And so there does seem to be an improvement in job growth. The question is the quality of job growth. We’ve heard from retailers that they’ve picked up their hiring. Some are good paying jobs, but not all, relative to the average. And so hopefully, it’s a permanent trend and not just indicative of a good and reasonably strong holiday season.

Chiotakis: I see, Tony, the rates on 30-year fixed mortgages have also fallen to record levels. What does that tell you about the economy?

Crescenzi: The decline in interest rates is, of course, a sign of stress, because usually, when interest rates are falling, it means that money is moving to Treasury securities and away from riskier assets such as equities and corporate bonds, and into the real economy.

Chiotakis: You guys deal with bonds there at PIMCO, and the bond sales from countries like Spain and Italy that have really told the story, right, that they’re at levels that really aren’t sustainable — what’s going on, do you think, in the eurozone? Will it get better?

Crescenzi: European nations want to form a marriage. They already have in the sense that they have the same currency, but they don’t use the same budgets. They haven’t combined their balance sheets, so to speak. And so, what’s going on is they’re attempting to form a more perfect marriage, go beyond just monetary union toward a fiscal union and put their budgets together. But getting to that point is tricky. As we in America know, it’s tough to make changes to entitlement programs and such quickly.

Chiotakis: Tony Crescenzi from PIMCO. Tony, thanks.

Crescenzi: Thank you so much.

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