The expression “When the US sneezes, the world gets a cold” is a common one. It means that the US economy drives global trade and economic growth.
While China and the Far East may not agree with this claim, it is clear that US events have an impact on growth and employment in many parts of the world, including Europe.
As the world slowly recovers from the Covid 19 pandemic, should we be concerned about the US’s conflicting economic indicators? Are we seeing a slowdown in the recovery? Is this a minor bump on the road?
The bad news is that consumer spending, which accounts for the largest portion of the US Gross Domestic Product (GDP), may be slowing. The decline in sales of cars led to a 1.1% drop in July retail sales, which includes both online and offline.
In August, the US consumer confidence fell to its lowest level since February. This was accompanied by a drop in overall consumer confidence in the US. A US official stated that concerns about the Delta variant and rising food and gas prices led to a less favourable view of current economic conditions. This is what most Americans would call a concern.
Another worrying factor was that the private sector in the US added only 374,000 jobs in August. This is far below the predicted figure of 613,000. However, there was some positive news from the US. The increase in new orders drove the manufacturing sector to strengthen. The Purchasing Managers Index rose from 59.5 in June to 59.9 August. Housing sector remains strong with one index that measures US house prices showing a 19.1% annual rise in June 2021.
Remember those retail sales that dropped in July? They were up in August, but by 0.7%.
The simple truth is that the US picture, like many other countries, is mixed. There are some sectors that are doing well and others that are struggling, and this is likely to change month-to-month. Other, external factors are also at play. The August sales of auto parts and cars fell by 4.5%. However, this was due to a shortage in computer chips as well as the unwillingness of American consumers to purchase.
Is the US recovery in danger of stalling? There is no one simple answer to the question. Recovery from the pandemic won’t be easy. Each country will recover at different rates and speeds and in different sectors of their economies. Although the US is not different, it is clear that what happens in the US will have an impact on other economies, particularly those in the West.
One final point is important. This article was published in September. All quoted figures were correct at time of writing. However, it is possible that they have been updated in today’s interconnected, fast-moving world. Is that to say the above comments are invalid? It is not. This simply highlights the fact that financial planning can be a journey and emphasizes the importance to keep in touch with clients. You can rest assured that we will always be there for you.