Growth Surge Shows Resilient U.S. as Mediocrity Reigns OverseasScott Lanman
America’s recovery is picking up speed while much of the rest of the world settles into what the International Monetary Fund’s Christine Lagarde calls the “new mediocre.”
As Europe verges on recession, Japan’s economy sinks from a consumption-tax increase and China is weighed down by stimulus-induced leverage, the U.S. grew at a 5 percent annual pace in the third quarter that was the fastest since 2003, revised government figures showed today.
The U.S. comeback rests on three pillars, according to Torsten Slok, chief international economist at Deutsche Bank AG: The Federal Reserve pushed more aggressively than its peers with record monetary easing. The economy has more built-in flexibility, with labor-market conditions that make it easier to trim or expand workforces. And the financial system has been restored to relative health.
“The policy response was swifter and deeper,” said Slok, who’s based in New York and formerly worked at the IMF. In addition, the U.S. economy “is simply more dynamic and resilient,” with greater competition and openness to the rest of the world, Slok said.
Another reason: The U.S. has rid itself of the drag from slowing fiscal spending, after cutbacks at the federal, state and local levels spanning the past four years, according to Jay Bryson, global economist at Wells Fargo Securities LLC in Charlotte, North Carolina.
“Fiscal policy has kind of gotten out of the way,” said Bryson, who worked as a Fed economist in the 1990s.
The IMF in October projected the U.S. would have the fastest growth among major advanced economies in 2015 at 3.1 percent, ahead of nations including Germany at 1.5 percent and Japan at 0.8 percent. The stagnation prompted IMF Managing Director Lagarde last month to exhort Group of 20 leaders at a summit in Brisbane, Australia, to use all tools at their disposal to avoid what she called a “new mediocre” period of sub-par growth.
Since the IMF forecasts were made, the European Central Bank’s outlook worsened and Japan reported its economy contracted in the third quarter, while Russia faces the worst crisis since its 1998 default, amid plunging oil prices.
The U.S. isn’t completely alone in showing economic strength. British household spending helped drive GDP in the U.K. to its seventh straight quarter of growth in the three months through September, with a 0.7 percent advance from the previous period, the government said today.
The performance reflects greater economic flexibility than most of Europe, Wells Fargo’s Bryson said. “The Bank of England was pretty aggressive, at least early on, in terms of providing stimulus as well,” he said.
While the American consumer leads the rebound in the world’s largest economy, lagging growth overseas may be restraining investment in U.S.-produced equipment. Orders for durable goods, those meant to last at least three years, unexpectedly dropped in November from the previous month, according to Commerce Department data. Demand for computers, metals and electrical equipment declined or was little changed last month.
Still, cooling demand overseas may not be much of a drag on U.S. growth. Exports made up just 0.6 percentage point of last quarter’s 5 percent expansion in GDP, while domestic consumption contributed 2.2 percentage points.
As a share of GDP, imports and exports “are relatively low for the U.S., at least relative to most other countries in the world,” Slok said.
“If the U.S. grows, that’s actually good for the U.S. and it’s good for the rest of the world,” he said. “But if the rest of the world has relatively slow growth, the impact on the U.S. is much smaller.”
What keeps the U.S. economy going? Flexibility and creativity, says Bryson.
“The U.S. economy is more flexible than other economies in the world,” he said. Moreover, “we still remain the bastion of new intellectual ideas that get applied economically. It’s the most creative economy in the world.”