As you probably know, there’s been a serious selloff in global markets this month. It’s being attributed to a lot of factors, most notably flagging growth indicators in both Europe and Asia, and “jitters” over the latest middle eastern war and now the Ebola epidemic.
So is the U.S. economic recovery, as fragile as a campfire in a downpour, fated to expire in the general deluge? Not according to TNR’s Danny Vinik:
[I]t’s pretty easy to see why experts are uneasy about the global economy. But why aren’t they gloomy about the U.S., too? The dollar has risen significantly over the past few months against the Euro, Pound and Yen. That makes it cheaper to take a vacation to Paris or Tokyo, while making U.S. products more expensive for Parisians or the Japanese to buy. That’s bound to hurt U.S. exports.
But global economic weakness also helps the U.S. One way is oil prices: Thanks to reduced demand, crude is more than 20 percent cheaper than it was at the end of July. That has pushed down the price of gas and it means consumers have more money to spend on other things. Lower interest rates will also make it cheaper for businesses to invest and consumers to buy a home. The Federal Reserve may also wait longer until it first raises interest rates as well. “There are a lot of economic cross-currents,” said Zandi. “If you do the arithmetic, they all kind of wash.”
He wasn’t alone in this belief either. “The retail sales and producer price index were both weak, but in general, we are seeing more positive economic surprises than negative,” said Eric Lascelles, chief economist at RBC Global Asset Management. “This is an economy that still seems to be lining up with quite robust growth.”
That doesn’t mean the current U.S. recovery is acceptable. Wage growth over the past year is just keeping up with inflation. But at the very least, the U.S. economy is prepared to weather a slowdown in other developed nations.
Yeah, I’d really hate to think this is the best we can do.
