Mon, Oct 06, 2014 - Page 15 News List

US economy grows amid global crisis

Bloomberg

The US is proving to be an oasis of prosperity in the midst of a troubled world economy.

Unemployment dropped to a six-year low of 5.9 percent last month as payrolls rose by a greater-than-forecast 248,000, a US Department of Labor report showed on Friday.

Other data last week showed US factories had their strongest quarter in more than three years, while exports rose to a record in August.

St Louis-based Macroeconomic Advisers bumped up its estimate of third-quarter growth to 3.3 percent, from 2.8 percent, after government data published on Friday showed the US trade deficit shrank in August to its lowest level in seven months.

“The internal dynamics of the economy are very strong right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, for consultants IHS Inc.

“We can withstand a lot of shocks,” he said.

The solid performance by the US contrasts with what is happening in much of the rest of the world.

The eurozone’s economy stagnated in the second quarter and is suffering from the softest inflation in five years, while a consumer-tax increase in Japan triggered its biggest economic contraction since 2009.

China’s economy, which helped bring advanced economies out of the recession in 2009, this year may undershoot the government’s growth target of about 7.5 percent amid a property slump and the slowest expansion in factory output in five years.

“Matters can be described as American exceptionalism,” said Larry Hatheway, chief economist at UBS AG in London.

“The US is the only large economic bloc experiencing an acceleration of growth, preparing for a tightening of monetary policy and enjoying an appreciating currency,” he added.

The divergence leaves foreign finance ministers open to criticism from US officials when they all gather in Washington next week for the annual meetings of the IMF and World Bank.

White House economic adviser Jeffrey Zients last week identified Europe as the US’ “No. 1 area” of economic concern and said its policies are “too tight.”

The US is not immune to the weaknesses evident elsewhere, of course.

After August’s strong trade numbers, a coming slowdown in US exports and a rise in imports will probably clip about a quarter percentage point off US growth, former US Federal Reserve director of economic research David Stockton said.

Still, the US outlook remains “relatively positive,” said Stockton, now a senior fellow at the Peterson Institute for International Economics in Washington.

He sees the economy expanding at about a 3 percent annual rate through the end of next year, markedly faster than the 2.2 percent pace it has averaged since the end of the recession in June 2009.

That is also much stronger than Stockton’s forecast of next year’s growth of 1.1 percent in the eurozone and 1.5 percent in Japan.

Former Fed chairman Alan Greenspan coined the term “oasis of prosperity” in the late 1990s as he pondered the ability of the US economy to thrive while much of the rest of the world was suffering, particularly crisis-hit Asia.

Now, the US is breaking away from the rest of the world partly because it has made more progress in working off the debt-driven excesses that helped precipitate the worst recession since the Great Depression.

Only the US and Germany among major economies have reduced total public and private debt as a share of GDP since 2007, according to data compiled by the McKinsey Global Institute.

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