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Pimco’s El-Erian: European Crisis Overshadows US Recovery

Monday, 09 January 2012 07:13 AM

Despite improving manufacturing data and better-than-expected unemployment figures in the United States, investors aren't going to come back roaring with a vengeance as long as the European debt crisis sticks around, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.

In the U.S. on Friday, the Bureau of Labor Statistics reported that the economy added a net 200,000 nonfarm payrolls to the economy in December, outpacing forecasts for a gain of around 150,000.

Manufacturing data has surprised analysts on the upside as well, and so have weekly jobless claims and crude inventories.

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But as long as European debt woes continue and with them, concerns that one or more eurozone countries will default and send shockwaves across global financial systems, expect dark clouds to hover about an otherwise sunny U.S. economy.

Furthermore, while the economy is adding jobs, it's not adding near enough to bring unemployment rates from their current levels around 8.5 percent to pre-recession levels of well below 5 percent.

"It's not enough to get a good number," El-Erian tells CNBC.  "You need a really good number, and we didn't get that today."

Europe has managed to preserve its currency zone for now by carrying out measures to patch up debt-ridden periphery economies, although it has avoided sweeping, continent-wide reforms.

That's going to change.

"It's unlikely that Europe will be able to muddle anymore," El-Erian says.
"That's not going to happen. They cannot kick the can down the road for another year. They have to make a choice."

Other experts agree that while unemployment rates are getting better, the labor market still has a long way to go before coming close to calling itself recovered.

"This morning’s stronger nonfarm employment data and drop in the unemployment rate to 8.5 percent provide at least a glass is 'half full' assessment of the economic environment," says John Silvia, chief economist at Wells Fargo, according to the Wall Street Journal.
"Unfortunately, the glass is very small."

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Monday, 09 January 2012 07:13 AM
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