Their propensity for creating a veritable art form of vacation-taking is one of the more enjoyable aspects of average Europeans. It is hard to convince the average American how little work is done in Europe throughout the month of August, but once one understands that the French can't even be bothered to return from the seaside to save grand-mère from a lethal heat wave, it becomes a bit more comprehensible that they couldn't possibly care less about manufacturing cars or selling investment services when it's vacation time.
Years ago, I worked for an American technology company that derived about half its revenue from European customers. It used to amuse me how half way through every August, the executives would start to panic because their sales were falling short of the projections which invariably failed to account for this month-long, continent-wide break. The executives would breathe a sigh of relief when business activity returned to normal in September, and they would completely forget anything had ever happened by December when they calculated the sales projections for the following year. Eventually, the second week of August would roll around, and the whole process would begin again. But when Europe closes, it's usually just for the month of August.
It's no secret that the global economy has been in bad shape for a while. The U.S. has seen two quarters of economic contraction, -6.1 percent GDP growth in Q4 2008 and -6.3 percent in Q1 2009, and the OECD is projecting -4.1 percent GDP growth across the Euro area in 2009. Steel production, which is a leading indicator of economic activity due to its use in so many producer and consumer products, has been reported to be down around one-third everywhere from Germany to Russia and Brazil. On the other hand, numerous financial figures are openly declaring that the worst is behind us, thanks in part to the evidence offered by the stock market's powerful 26 percent rally in just two months.
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However, two things lead me to suspect that the economic troubles we have seen thus far are merely the first minor skirmishes in what will likely be a long and difficult campaign. In discussing the economy over coffee with one international executive, I learned that steel shipments to one major European country were now less than 10 percent of what they had been a year ago, indicating that the 32 percent decline previously reported was only about one-third of the total decline to be expected this year. The very next day, I happened to encounter an executive at a very large manufacturer of expensive producer goods and was told that their shipments to another major European country had fallen to such an extent that they were projected to be around 12 percent of their 2008 sales. To add insult to injury, this disastrous projection incorporated the assumption that sales activity would actually increase a little from that which they had seen over the first three months of 2009.
Of course, this is mere anecdotal data, and it's certainly possible that there are other factors at work that could contradict what otherwise looks disturbingly like a severe and lasting economic contraction in the making. I am not a professional analyst, and the amount of relevant information I don't possess approaches the comprehensive. Nevertheless, there seems to be a rather large dichotomy between what the economists are predicting and what at least some business executives are seeing. Nor should it escape one's attention that in January 2008, the OECD was projecting 1.9 percent GDP growth for the Euro area. Since the experts were previously off by $639 billion, which is what the 6.1 percent that separates that 2008 projection from the April 2009 figure represents, isn't it at least possible that their current estimates are similarly over-optimistic?
It's not my purpose to cry bear here, and this is one of those circumstances where it would definitely be more satisfying to be wrong than to be right. But, their anecdotal nature notwithstanding, these two data points should serve as sufficient reason to keep a skeptical eye on the incessant happy talk from the market cheerleaders who still dominate the financial media.
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