US economy is in recovery & that’s good for Australia
There used to be a saying that “if the US sneezes the rest of the world catches a cold”.
These days journalists tend to use variations of the same phrase when stuck for a headline, but the underlying reasoning behind the idiom still holds.
The 20 countries which comprise the “G20” comprising 20 major economies account for more than three quarters of global GDP.
There are a number of other countries of importance – in Eastern Asia and Western Europe, for example – but the below chart identifies the big players.
China will probably grow at somewhere around 6.5 percent over the next couple of years through 2016, and India is forecast to grow at around 6 percent.
Japan continues to stutter along with its experimental policies with Japanese Prime Minister Shinzo Abe planning to deploy a massive Y3.5 trillion stimulus in order to stave off recession, to be approved by the Cabinet on Saturday.
This week Abe was elected for a third term, and with the rate of inflation in Japan ticking back to 2.1 percent (despite very low unemployment of 3.5 percent) both the government and central bank will continue to take extraordinary measures in order to get the economy to positive territory and growing again.
Thanks to a rebound in 2014 and changes to measurement criteria, Britain is now considered to be the world’s 5th largest economy and slowly the media is begrudgingly accepting that the UK is in recovery mode, as reflected by record total employment a number of positive articles in the serious press over the Xmas period.
Much of the Eurozone on the other hand is in a complete mess, and so now too is Russia.
The US continues to have what is perhaps the most influential economy, so let’s have a look at what’s happening over there in three parts.
Part 1 – Unemployment Rate and Earnings
The headline unemployment rate has fallen from double digit levels to just 5.8 percent since 2009.
The total number of US unemployed recorded by the Bureau of Labor Statistics at 9.1 million has declined by 1.7 million over the past year.
The number of long-term unemployed at 2.8 million was unchanged in the last month but 1.2 million lower over the past year.
Over the past year average hourly earnings have increased by 2.1 percent and the workforce participation rate is essentially unchanged since April at 62.8 percent.
It’s been a long time coming, but it is good news.
Participation rates are still well down, however, and it is also important to consider…
Part 2 – Payrolls
The long run payrolls data shows why there is always so much ongoing debate about the health of the US economy, largely due to the volatility of the figures by month.
In November the US economy added a massive 321,000 jobs.
This was the greatest number of jobs added on the survey in 3 years, and well above the average monthly gain over the past 12 months of 224,000.
Reported jobs gains were widespread including across professional and business services (+86,000), retail trade (+50,000), healthcare (+29,000) and manufacturing (+28,000).
I recently wrote a blog post where I suggested that while the monthly figures do jump around plenty, the trend in average monthly payroll gains over the last five years is clearly positive.
Certainly it’s been a long, slow haul back from the horrors of 2009 but, in part thanks to experimental use of quantitative easing (QE) the US economy has seemingly reached escape velocity.
The most recent set of data released, which was also positive, concerned…
Part 3 – Growth
On Tuesday, the US Bureau of Economic Analysis released its National Accounts figures inclusive of the third estimate of GDP for Q3 2014 which revealed that:
“Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 5.0 percent in the third quarter of 2014, according to the “third” estimate released by the Bureau of Economic Analysis.”
A 5 percent annualised rate of growth, the fastest in well over a decade.
The usual points will be raised about whether the figures have been distorted by the “Big Freeze” (see the most recent trough above), or by Obamacare, or by something else or other…but such pleas are beginning to sound increasingly desperate.
Real GDP has now soared well past the pre-financial crisis peak, driven as confirmed by the BEA by a wide range of positive contributions.
“The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, state and local government spending, and residential fixed investment.”
You can run other charts yourself, such as real GDP per capita (which is also now 2.6 percent higher than the pre-financial crisis peak) or indeed any number of other metrics.
But the conclusions should be the same.
The US economy is in recovery – and that’s great to see.