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Economy & Business

A Historic Start: Economic Ups And Downs

SCOTT SIMON, HOST:

This is WEEKEND EDITION from NPR News. I'm Scott Simon. We've just seen the worst first week of the year in stock market history. Fears over economic trouble in China sent stocks plunging around the world, but we also got a surprisingly good employment report yesterday in the United States. So the economy here might be stronger than we thought. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: This past week has not been dull for anyone trading stocks. Weak economic data in China sent shares there lower. That's not so unusual. But this time, the Chinese government had instituted what are called circuit breakers to suspend trading after a sharp decline. That was supposed to calm investors, but it backfired. This was some of the coverage on CNBC.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN #1: We've hit what they call circuit breaker...

UNIDENTIFIED WOMAN: Number one...

UNIDENTIFIED MAN #1: This is crazy...

UNIDENTIFIED MAN #2: Yeah, it's very disconcerting for the markets. They're learning by doing...

UNIDENTIFIED MAN #1: It is...

UNIDENTIFIED WOMAN: We got Shenzhen markets basically falling through 2,000 down 6.7 percent.

ARNOLD: Later in the week, China got rid of the circuit breakers and stocks stopped free-falling. Still, even the major U.S. stock indexes over the past week fell between 6 and 7 percent. Matthew Kaufler is with Federated Clover Investment Advisors. He says actually the China trouble itself isn't so terrible.

MATTHEW KAUFLER: It's perfectly normal for growing economies like China or India to go through growing pains, but it will sort itself out.

ARNOLD: Kaufler says though on top of China, there's plenty of geopolitical uncertainty. Tensions between Iran and Saudi Arabia, terrorist attacks and...

KAUFLER: You had North Korea apparently testing the hydrogen bomb. That's not a good development. And we can call it saber-rattling all we want. It's not a good development.

ARNOLD: There's skepticism about whether that really was a hydrogen bomb. But Kaufler says all these things together have taken a toll on investor confidence. Finally, by Friday morning, markets got some good news. The Labor Department reported nearly 300,000 job gains in the U.S. in December, and the previous two months were revised higher by another 50,000 jobs.

DAIVD KOTOK: The U.S. economy is recovering.

ARNOLD: David Kotok is chief economist at Cumberland Advisors. He says he was encouraged by the jobs report. He also thinks cheaper gasoline is going to give the economy more of a boost going forward. And he says he's bullish on the outlook for the U.S., for the rest of the decade, for a bunch of reasons.

KOTOK: Low interest rates, gradually improving growth, gradually improving labor markets in the United States, and the U.S. stock market will flourish in such an environment, maybe dramatically higher.

ARNOLD: Still, the jobs report had a weak spot in it - wage growth. Lindsay Piegza is chief economist at Stifel Nicolaus. She says wage growth was flat in this latest report, and it's been too anemic throughout the recovery.

LINDSAY PIEGZA: That's exactly right. And that's how we know that this current average pace of around 250,000 jobs is insufficient to absorb all the slack in the labor market. If that was sufficient, we would be talking about 3, 4 percent wage growth. But instead we're still bouncing around 2, 2.5 percent.

ARNOLD: So Piegza says this recovery has a ways to go before she'll feel really good about the health of the U.S. economy. Many investors may actually be thinking the same thing. Even after the better-than-expected jobs report, the Dow and the S&P both closed down another 1 percent yesterday. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.