Since the stock market bottomed in March of this year, it has been firing on all cylinders -- except for those in the auto industry who manufacture the most cylinders of course. This year has not been kind to them.

For months, many have been surprised at the rapid rise, given the level of unemployment. During this same period, Wall Streeters have been dancing up and down, looking forward to more bonuses.

As the number of unemployed has climbed and the period of same has lengthened, many have wondered how business could be improving during a time when the consumer (those still left) has transformed from spender to saver.

Ah, yes. Tuesday, baseball season, and new NCAA champs. Sigh. Online classified ad growth skyrocketed by 84% in February, according to Hitwise (tip to MarketingCharts.com). The bad news? Craig's List and other free classified sites dominated the growth, further sealing the doom of newspapers. Steve Ruble of Micropersuasion interviewed Jeff Jarvis of "What Would Google Do?" fame (and Buzzsaw, of course) and asked what the future of online advertising was. The reply? Bleak to non-existent.

Abercrombie & Fitch (NYSE: ANF) is probably the best managed specialty retailer of the pack. It's maintained strict discipline on pricing and discounting, unlike many of its peers. ANF has managed to expand its offerings into three separated branded chains selling to different markets.

And the company enjoyed accolades from Wall Street after it beat earnings estimates handily on Feb. 13, reporting earnings of $1.10 per share versus consensus of $1.01 per share. Shares were up over 10% on the news. While I think not much has changed with Abercrombie's operational expertise and its strategy, the current environment is simply not conducive to teens paying big bucks for clothes.

What's the world's biggest economic concern, even after a decade of globalization? When the U.S. economy will begin to recover and pull out of its recession.

What's, arguably, the world's second biggest economic concern? When China's economy will begin to grow at a stronger rate.

The U.S. and E.U. recessions have decreased demand for China's exports, which in turn has slowed China's GDP growth from more than 11% in 2007 to about 8% in 2008, with even slower growth in the final half of 2008, so says economist David H. Wang, a China expert.

The power of Chinese demand

True, slower Chinese growth has taken pressure off commodity prices globally -- it's a major reason oil, copper, coal, and related commodity prices collapsed in 2008 -- but that reduced demand also has "resulted in a negative-feedback loop," Wang said, slowing the economies of raw material- and commodity-exporting countries, particularly emerging market economies like Brazil.

The U.S.'s recent economic doldrums, combined with a 4-year-plus economic expansion that produced less-than-optimal-results in several statistical categories, has caused investors' recollection of robust economic times to fade from memory.

For a refresher, albeit not an ideal case study, regarding what a robust economy looks like, consider China's economy: China's retail sales surged 21.6% in May compared to a year ago, Bloomberg News reported Friday, a rate seven times faster than May retail sales growth in the United States.

Retail sales increased to 870.4 billion yuan or $126 billion in May after rising 22% in April, on strong auto sales and building material purchases, Bloomberg News reported Friday.

The U.S. trade deficit fell substantially in March 2008, to $58.2 billion, the U.S. Commerce Department announced Thursday, as the slowing U.S. economy reduced consumer demand for imported automobiles, furniture and consumer goods, among other categories.

The March 2008 trade statistic was the lowest trade gap since November 2003, the Commerce Department said.

Economists surveyed by Bloomberg News had expected the March 2008 trade deficit to be $60.8 billion.

The February 2008 trade deficit was revised lower to $61.7 billion from $62.3 billion. The trade deficit was $59.0 billion in January 2008.

In March 2008, nominal imports decreased 2.9% to $206.7 billion, while nominal exports fell 1.7% to $148.5 billion.

Slowing U.S. economy weighs

Economist David H. Wang told BloggingStocks Friday the March 2008 trade report clearly displays the effects of a slowing U.S. economy.

"We see a clear pullback in domestic demand in March [2008], and the core import number was down 3%, so that's indicative of fewer consumers making purchases, which is consistent with belt-tightening and U.S. payroll reductions," Wang said. "It's clear now our nation is demanding less from international suppliers, which will have a negative effect on their economies, as well."

The compelling question following the Fed's action, in conjunction with the world's other, major central banks, is whether it will work. Will it be enough to get the U.S. economy moving again?

And as is so often the case in economics, the answer depends on three unknown factors, a pair of economists told BloggingStocks Tuesday. (In an initial review, the market appeared to signal its approval of the Fed's action, with investors sending the Dow 300 points higher to 12,156 in late Tuesday afternoon trading. )

New Fed tool: TSLF

First, the Fed's new Term Securities Lending Facility should convince bank dealers that liquidity should not be an issue, economist David H. Wang said Tuesday. "No bank or bond dealer should fear that they won't be able to find financing. That should improve bond market liquidity," Wang said. In addition, the Fed's willingness to swap U.S. Treasuries for mortgage-backed securities (MBS) should restore some trust -- but by no means total trust -- to the MBS market and help market participants price these securities, he said. The Fed's accepting private mortgage debt collateral speaks directly to where the market is stressed the most, Wang said. However, if MBS's are not pricing and trading, that would indicate continued concerns about liquidity, he said.

The U.S. economy grew at an annual rate of 4.9% in Q3, prior to the full impact of the deepening housing recession and extensive subprime mortgage and related asset defaults.

The 4.9% growth rate, a revised statistic announced by the U.S. Commerce Department, was slightly higher than the 4.8% consensus estimate. In Q2, the U.S. economy grew at a 3.8% annual pace.

The U.S. economy has expanded 2.8% in the previous 12 months - close to what many economists believe to be its potential, or sustainable GDP growth rate.

Corporate profits from production fell 1.2% to an annual rate of $1.62 trillion, the first decline in that category since Q4 2006. Personal income rose at a 3.8% annual rate.

Economic Analysis: Given the economic activity lag effect, the market is likely to look past the Q3 GDP report and focus instead on the Q4 GDP report, which will more-fully reflect the effect of subprime losses on the economy. Likewise regarding the U.S. Federal Reserve: the Fed is likely to concentrate less on the solid Q3 GDP stat and focus more on the economic impact of the housing correction, tight credit markets high oil prices, and weak dollar when it meets December 11 to discuss monetary policy. The Fed is widely expected to cut key short-term interest rates by 25 basis points or one-quarter of a percentage point at that meeting.

Sudden large, negative financial events can disrupt, or at least critique, even the most bedrock economic tenets, let alone recently-percolated conventional wisdom.

On the heels of the housing and credit market crunches, one conventional wisdom item that's currently coming under criticism is the notion of "decoupling" [Subscription required] - the theory that despite a slowing U.S. economy, the European and Asian engines of growth would be sufficient to maintain adequate global GDP growth, The Wall Street Journal reported.

The International Monetary Fund published a chapter in April 2007 entitled "Decoupling the Train," which argued that the U.S.'s mild GDP growth was caused by a housing sector correction. Housing was less global than other commodities, it argued, and hence would not impact the world economy as much.

For example, about two months ago, the IMF projected that global economic growth would slow just slightly in 2008 to 4.8% from 5.2% this year.

So far, China's effort to slow its economy is not working.

China's economy continues to grow at double-digit rates. Commodity and resource utilization remain high, speculative excesses abound, and exports? China's trade surplus keeps soaring, with the United States and Europe incurring rising trade deficits.

The Chinese government announced that over the past 12 months, China's trade deficit with Europe increased an alarming 46% to $135 billion, The New York Times reported. Over the same period, the trade deficit with the United States did not increase as much, in percentage terms, up 18%, but in absolute terms the U.S. still leads the pack with a daunting $162 billion trade deficit.

Surging trade surplus

Further, during the past 12 months, China's overall trade surplus exceeded $250 billion, including a record $27 billion in October 2007.

In the coming weeks, bloggingstocks.com will review those stocks most likely to benefit under each scenario: a weak dollar or a strong dollar.

Commodities expert Jim Rogers is on-record with where he thinks the U.S. dollar is headed in 2008: down. That, in and of itself, is not news.

"It doesn't take a genius to figure out that it's a currency that's going to be going down for some time to come," Rogers said in an interview with the Financial Times. Rogers added that in his interpretation the U.S. Federal Reserve's and the U.S. Treasury's willingness to print money and drive down the greenback is clear.

Among other consequences of the dollar's continued fall, Roger sees higher commodity prices, a rise in U.S. inflation, and a rise in China's currency, the yuan (if the Chinese government lets it rise more). Rogers, chairman of Beeland Interests Inc., said he is also shorting shares of Citigroup (NYSE: C). [Citigroup's shares closed down $1.92 to $35.81Monday after the company said it will have to write-off $8 billion-$11 billion to account for the reduced value of subprime mortgage-related securities.]

All of which begs a good question by the investor / reader: How did the U.S. dollar drop so much in value?

In the weeks ahead, BloggingStocks will take an in-depth look at the U.S. dollar's decline, its impact on the global and U.S. economies, as well as on job creation, trade, and investment.

Remonstrations about the weak U.S. dollar are getting to be a little bit like what Mark Twain said about the weather:

"Everyone seems to complain about the weather, but no one ever seems to be able to do anything about it," Twain said.

Similarly, everyone seems to complain about the weak U.S. dollar, but no one ever seems to be able to do anything about it.

This time it was former U.S. Treasury Secretary Robert Rubin, who Tuesday told Bloomberg News that relying on a falling currency to increase exports isn't a "sound approach" and said policies should be implemented to strengthen the dollar.

The Commerce Department reported today that personal income was up 0.5 percent, slightly higher than August's revised 0.4 percent, but personal consumption slowed to just 0.1 percent in September, less than the revised 0.2 percent for August. These numbers are exactly the opposite what many economist were expecting. Economists expected to see a 0.4 percent increase for personal income and a 0.2 percent increase for consumer spending.

This report reflects the trend we saw in last week's GDP report from the Commerce Department which showed that economic growth was the weakest in three years. It also reinforces the Fed's decision to hold short-term interest rates steady amid signs that the economy is slowing.

Spending on durable goods -- those designed to last three years or longer -- increased by 1.6 percent, which is much better than August's 1.4 percent decline. But spending on non-durable goods declined by 1.2 percent after gaining in August by 0.2 percent.

Personal savings continues to be in the negative with a drop of 0.2 percent. That's now 18 months that savings has been in the red. I suspect personal income growth would need to increase much more dramatically to see the savings rate turnaround.