Economy Watch: World Economy Still Roiled

The world economy continued to be vexed on Tuesday by the disaster in Japan. In Japan that day, the same day as another explosion was reported at the Fukushima Daiichi nuclear power plant, the Nikkei 225 dropped nearly 11 percent, which was the third-largest contraction ever for that index. Much of the selling seems to have been from panicky overseas investors in Japan, who have been pouring money into Japanese equities in recent months.

Japan wasn’t alone in equity declines, however. The FTSE All-World Index fell 2 percent on Tuesday, which was the largest one-day drop in worldwide stocks since last summer, during the nervous Greek debt crisis days (which seem positively quaint now). And where’s that money going? U.S. Treasuries. Worries about U.S. governmental debt seem to fly out the window when global investors have other things on their mind.

Since Japan is a major user of commodities, prices for a number of commodities have started to decline. The Reuters-Jefferies CRB index, which tracks 19 key commodities, was down 3.6 percent on Tuesday, the largest decline in about two years. In some cases, commodities previously headed skyward have made a U-turn, such as oil and even gold. Less closely watched commodities are down too; copper, for instance, reached a three-month low on Tuesday before bouncing back a little.

Fed keeps a brave face

The Federal Open Market Committee, meeting on Wednesday, asserted that it wasn’t going to back away from QE2. Also, the target range for the federal funds rate will remain 0 to 0.25 percent, where it seems that it’s always been.

The Fed also waxed optimistic. “The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the central bank said in a statement on Tuesday, though it did make a mention of rising prices: “The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation, [but] the Committee expects these effects to be transitory.”

Curiously, the Fed made no mention of the crisis in Japan, and whatever impact it might have on the U.S. economy. Then again, the central bank often takes time to deliberate on matters of great import, something like Pooh Bear.

Americans pessimistic about retirement

The Employee Benefit Research Institute released the results of a survey about a different kind of consumer confidence on Tuesday, namely one focusing on the ability to afford retirement. The gist of the report is that fewer Americans believe it possible than before.

More than a quarter of respondents, some 27 percent, said they “lacked confidence” about their retirement savings, up from 22 percent at this time last year. Unsurprisingly, the amount a worker already has in savings is a strong indicator of how they feel about retirement affordability–and a lot of workers have a lot less in savings than they did only a few years ago.

Fifty-six percent of the respondents, a pool that included 1,000 current workers and 250 retirees, said that they had less than $25,000 in savings and investments, not counting equity in their primary residence or participation in a pension plan. About 42 percent of the respondents said they estimated their retirement savings needs by that old financial planning standby, “guessing,”

Wall Street dropped again on Tuesday, though nothing like the Nikkei, with the Dow Jones Industrial Average losing 137.74 points, or 1.15 percent. The S&P 500 was down 1.12 percent, and the Nasdaq dropped 1.25 percent.