What is driving U.S. economic performance?
The U.S. Economy Dominates the Global Arena as China Takes a Turn for The Worse
Two economic powerhouses find themselves at opposing ends of the global spectrum. On the one side is the U.S. economy which has undergone massive QE stimulus since the global recession in 2008/9, and on the other hand is the world's second-largest economy China which is in the throes of a sharp contraction. That China's GDP rate as dropped below the key 7% support level – now at 6.9%- for the first time is indeed worrying, but that is one of many factors that is deeply distressing to international investors, traders and analysts. China's year on year import figures in September dropped by 20.4%, while exports dropped by 3.7% during the same period (year-on-year).
The Chinese authorities have implemented a series of measures aimed at stimulating economic growth including a devaluation of the CNY, massive purchases of blue-chip stocks on Chinese equities markets, moratoriums on sales for those shareholders owning 5% or more of the companies stock for at least 6 months, and there is talk of additional stimulus by way of reduced interest rates. The Chinese economy is also facing pressures on other fronts, notably the steel manufacturing sector which has contracted sharply this year. In fact, the World Steel Association (WSA) is anticipating a 3.5 percentage point drop in Chinese demand for steel in 2015. This is likely to be followed by a 2 percentage point drop in 2016.
The U.S. Remains Solid for Now
The U.S. however finds itself deeply concerned about the state of the global economy. Just recently, the figures for crude oil stocks changes were announced. For the week ending October 23, U.S. crude oil stocks increased by 3.376 million barrels, a sharp reduction after the 8.028 million barrels for the week ending October 16, 2015. The good news for analysts is that this last forecast was largely anticipated by market participants. The consensus estimate was 3.4 million barrels, and the actual figure came in 0.014 million barrels lower – but largely in line with expectations. This contrasts sharply with the 8.028 million barrels actual figure for October 16 when the forecast was 3.9 million barrels at a time. U.S. GDP growth is largely in line with expectations at 2.70% for Q2 2015 (year-on-year). The country's growth rates have been declining over the past 2 decades, but the sheer size of the economy provides a much different base to many developing economies which can afford to have a higher GDP growth rate.
Important Economic Metrics for the U.S. Economy
The US dollar index is currently trading at 96.64, slightly down for the week, but still rather bullish against a basket of 6 currencies given the massive monetary stimulus that is expected in December 2015 by the European Central Bank. The GDP growth rate of the US economy for the last quarter is 3.9%, while the unemployment rate remained steady at just 5.1%. There is some concern about the decline in manufacturing payrolls, however the business confidence remains above the key 50 metric at 50.2 (expansionary/bullish sentiment) and the manufacturing PMI is also healthy at 54. The U.S. economy also sports a services PMI of 54.4.
Consumer confidence has dipped somewhat in the U.S. since a high of 98.1 in January 2015 and it is now at 92.1. These metrics measure 3 aspects of the economy from the consumer's perspective: The consumer’s personal situation, the consumer’s forecast of the economy at large in the short-term, and the consumer’s perception of the economy over the long-term.
Of course there are some concerns within the U.S. economy that the inflation rate remains at 0%, largely due to the contractionary effect on the economy as a result of weak crude oil prices. The Fed has been targeting an inflation rate of 2%, but the consumer price index month on month inflation rate for September was recorded at -0.2% – a worrying statistic, but in line with expectations. The forecast for the month of October is 0.25% marking a departure from low forecasts. For now, all eyes are on the Fed, as market participants are expecting some indication as to the scope and timing of the next interest-rate hike. This will be an important barometer of U.S. economic performance, and it will deeply impact on the world at large.
Author Bio: Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise for the globally renowned spread betting company –InterTrader.