Market surges – but politicians still cautious about recovery

The Dow Jones industrial index rose strongly last month, gaining almost 8.6 per cent in July.

This shows, quite clearly, that many American investors now  believe that the worst of the global economic crisis is behind us.

American – and Australian – political leaders, though, still doubt that.

US President Barack Obama, for one, is dogmatic about that.

“As far as I am concerned,” he said,”we will not have a recovery while we keep losing jobs.”

Australia’s Treasurer, Wayne Swan, is equally blunt.

“Australia still faces tough challenges,” Mr Swan told Channel 9, in an interview yesterday.

So what is going on here?  Surely the investors, too, know something.

And, one said over the weekend, he had never seen markets “just stabilize.”  Clearly he, at least,  expects too see a recovery, in the months ahead.

The economist, Chris Richardson, probably has the best explanation. He says markets move quickly, but economies move slowly.

So how bad has it all been, really?

The Opposition Leader, Malcolm Turnbull, argues that the present crisis hasn’t been as bad, at least for Australia, as the 1990 recession.   And he accuses the Prime Minister, Kevin Rudd, of recklessly putting the next generation of Australians into debt, to alleviate it.

New figures, though, now show that the  US economy shrank by 3.9 per cent, in the first 12 months of its current recession.  That is  its worst slump since the Great Depression.

Although Australia now depends, at least more directly, on the Chinese and Japanese economies, that is still a figure that no Australian government can afford to ignore.  The US, to a large extent, is still the engine of the global economy.  It is still, for example, both China’s and Japan’s biggest customer.

This will be a busy week, for local economy watchers, too.

The Reserve Bank Board, for example, meets tomorrow (Tuesday) to review Australia’s interest rates – and remarks the Bank’s Governor, Glenn Stevens, made last week show, beyond doubt, that he is starting to worry about resurgent inflation.

However a decision either to raise – or indeed cut – interest rates tomorrow would be a big surprise. Most analysts expect the board to simply keep rates on hold, once again.

Board members will see two important economic indicators, before they announce their decision, about 2.30 pm tomorrow.

They are the  figures the Australian Bureau of  Statistics is releasing for movements in  both House Prices and Retail Sales during June.  Both figures are due to be released at 11.30 am tomorrow.

The Bureau is also planning to release its Internati0nal Trade statistics for June on Wednesday.

Most interest, though, will be on the Bureau’s Labor Force figures for July.  They are due out on Thursday this week.

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