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Economic Recovery: The Good, the Bad and the Ugly

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We got some very good news as far as the overall economic recovery goes: businesses, especially small businesses, are hiring. As this CNN Money article notes, small businesses, in part due to their operational agility, are often the first to start hiring as the economy improves. Most importantly, the 297,000 jobs added significantly outpaced the expectations of most economists.

Small businesses saw a sharp jump in hiring in December, according to an ADP report released Wednesday.

The private sector added 297,000 jobs overall last month, with almost all of the gains coming from companies with less than 500 workers. Those firms added a net 261,000 new positions during the month, ADP estimates.

This doesn’t mean unemployment rates will markedly fall in the near future, and the country surely still isn’t out of the woods yet, but it is at least some good news — something that has been hard to find for the past two years.

Unfortunately, there is an increasingly prevalent threat looming that may hamper economic recovery on a global level: energy costs. The BBC explains.

The current high price of oil will threaten economic recovery in 2011, according to the International Energy Agency (IEA).

It said oil import costs for countries in the Organisation for Economic Co-operation and Development had risen 30% in the past year to $790bn (£508bn). The agency says this is equal to a loss of income of 0.5% of OECD gross domestic product (GDP). The IEA’s chief economist said oil was a key import of any developed country.

There are also concerns about the rising costs of other commodities. The UN’s Food and Agricultural Organisation (FAO) said the high oil price had pushed the price of food to a new record.

The article goes on to mention that higher oil and coal prices don’t just affect food, of course, but trade balances and household spending as well. Taken together, these two bits of information feel like one step forward, two steps back.

And this brings us to the Federal Reserve’s latest plan to buoy the economy.

A video that was made toward the end of last year was recently brought to my attention by by Forbes’ Amity Shales, who calls the viral cartoon Quantitive Easing Explained the “the best commentary on Fed policy currently out there.” I’ll let her explain in her own words why the blunt, cut-to-the-chase message about the Fed’s controversial decision to buy $600 billion worth of Treasury bonds has resonated so well with an American public tired of hearing government officials tout economical theory that few laymen understand — particularly when all most laymen want is more work.

What the national leap to these new media tells us is that many Americans are desperate. They want to know what must be changed—or kept the same—in the U.S. economy. Professional economists may be on the trail of the answer, but to find it they have to dedicate more time to inquiry and less to self-important obfuscation.

This so-called Quantitative Easing 2 (or QE2 as much of the financial media likes to term it so endearingly) will remain controversial for some time, and neither side will be proved correct until they are. And really, as with most interventionalist economic policy, unraveling all the threads to even determine what actually caused what will always be difficult — if not impossible — to know. There are so many externalities and all that.

So the mud-slinging debates surrounding the Fed’s latest move will remain ugly as many workers (or wannabe workers) ask similar questions to those in the video below — and companies continue to ponder when it will actually be safe to once again start spending and hiring.

Australian Insurers Brace for Worst

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Close to 348,000 square miles across 20 towns are flooded and 200,000 residents affected after heavy rains drenched Queensland and neighboring states from December 25 to January 3.

The effects of the flooding are far-reaching. Reports indicate Queensland-based insurer SunCorp has told the Australian Stock Exchange it has received 1,800 claims so far. A JP Morgan analyst has said that losses to the insurance industry due to the flooding are estimated at $1 billion. The Insurance Council of Australia (ICA), however, has said that it is too early to provide a loss estimate.

The worst flooding in decades has affected an area the size of Germany and France, leaving towns virtual islands in a muddy inland sea, devastated crops, cut major rail and road links to coal ports, slashed exports and forced up world coal prices.

Coal production in Queensland has been severely disrupted. “The Queensland Resources Council said lost coal and gas production would run to hundreds of million of dollars.” Economists have projected a $6 billion loss from reduced export volumes.

Key crops such as cotton, sunflower, sugar and wheat have been gravely affected by the floods and, according to the Queensland Farmers Federation, few farmers have flood insurance. Crop losses alone could exceed $1 billion.

Below is a video of the “biblical” Australian floods that have claimed the lives of 10.

Needless to say, the property damage in Queensland and neighboring states will be a hard hit to the country’s insurers.

Attention Walmart Shoppers: The DHS Needs Your Help

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The Department of Homeland Security has teamed up with the world’s largest retailer in an attempt to reach millions of shoppers this holiday season (and beyond) to remind them to report suspicious activity to law enforcement. The program is dubbed “If You See Something, Say Something” (a familiar slogan to NYC transit riders) and is currently operating in 320 Walmart stores across the nation.

“Homeland security starts with hometown security, and each of us plays a critical role in keeping our country and communities safe,” [DHS] Secretary Janet Napolitano said. “This partnership will help millions of shoppers across the nation identify and report indicators of terrorism, crime and other threats to law enforcement authorities.”

The initiative will focus on informing customers in checkout lines via a short video message by Napolitano herself. Eventually, the program hopes to have close to 600 stores participating from 27 states. And it’s not only Walmart that has been selected for this campaign. The program has already partnered with the Mall of America, the American Hotel & Lodging Association, Amtrak, the Washington Metroplitan Area Transit Authority, the New York City Metropolitan Transit Authority, sports and general aviation. Here’s the video that some Walmart shoppers will see:

China Plays Hardball With Rare Earth Exports

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Rare earth metals are used in the manufacture of many items such as electric cars, computer screens, wind turbines and cell phones, just to name a few. Needless to say, rare earth metals are much-needed and in almost constant high demand. And when businesses need rare earth metals, there’s one country they turn to: China.

China produces 97% of rare earth metals, much of which is exported to Japan. But recent reports claim that shipments of the metallic element to Japan were halted. There are a few theories as to why.

The halting of shipments came, coincidentally (or not), after Japan arrested a Chinese fishing boat captain “whose trawler collided with two Japanese patrol boats off disputed islands in the East China sea.” Now, Japan is accusing China of using the metals, and its near-monopoly of it, as a “bargaining chip.” A claim China denies:

Speaking to a China-European Union business summit in Brussels, [China’s Premier] Wen [Jiabao] echoed other Chinese officials in denying Beijing had ordered traders to hold back rare earth shipments to Japan due to a recent flare-up in tensions, the newspaper China Daily reported Friday.

China claims they cut back (denying they halted shipments) because demand for the metals is exceeding supply (a claim that has received much attention lately). In either case, the Japanese are very concerned that cutbacks in exports will hurt their tech-heavy manufacturing businesses. A valid concern indeed.