Despite Global Slowdown, U.S. Economy Plows Ahead
Oceanside, CA - Economists are waging a debate on whether the weakening global economy will drag down the U.S. or is the American economy strong enough to sustain its recent momentum and maybe even nurse the rest of the world back to health? The headwinds out of Europe, China, Russia and Japan are holding back U.S. exports. Surging dollar appreciation may take the wind out of the sails of continued robust corporate profits and cripple investment in emerging markets. Throw in a bounce back in oil prices, and mix in more taxes and regulations, and it appears to be a recipe for a major growth slowdown, says Frank Chow, chief economist for Trade Show Executive.
Yet Chow also notes the U.S. jobs market is marching onward and wage growth is starting to percolate. Corporations are moving jobs back to the U.S. and consumer spending and confidence are still solid. Homebuilders are optimistic that the housing recovery will continue in 2015, despite another Winter of record snowfalls. Small businesses are springing to life. Most importantly, innovation among U.S. firms is unprecedented and is changing the face of business worldwide. And more often than not, trade shows are the medium where new products and processes are introduced.
Which scenario will have the most influence on the U.S. economy in 2015? Most experts believe U.S. growth will continue at a slow but steady pace despite the global slowdown. Frank Chow is in this camp. Here is his general perspective: (1) The U.S. still has by far the largest economy in the world. (2) The economic vitality exhibited by the U.S. going into 2015 will be a stronger force than the economic troubles in Europe and Asia at this time. (3) Exports and thus manufacturing from U.S. multinationals will take a hit, but the U.S. economy is more domestic driven. (4) Eventually, growing U.S. imports and investment will help these struggling countries to recover.
How strong is the U.S. economy? Consider this: The U.S. created 1.7 million jobs last year, and in January added another 257,000 new jobs, which translates to an annual increase of over 2.7 million new jobs, Chow points out. More importantly, he says that more than 700,000 job hunters re-entered the labor force in January. The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) says job openings rose to 5.03 million in December, the highest level since 2001 due to improving demand for goods and services. JOLTS showed job openings increased among retailers, construction companies, professional and business services, education and health care providers, but fell in manufacturing.
The broadest measure of the economy, the Gross Domestic Product (GDP), has been climbing since the First Quarter of 2014. However, the first estimate for Fourth Quarter GDP came in at a 2.6% annualized rate, below expectations of 3%. Chow believes the disappointing figure was not related to a weak U.S. economy but mainly from these situations:
- Major bottlenecks at 29 West Cost ports, due to a labor dispute, have hampered exports and imports and holiday sales. Consulting firm Kurt Salmon estimates the port congestion may cost retailers $7 billion. [A five-year deal was reached as we go to press on February 20.]
- Falling oil prices from a deteriorating global demand caused domestic oil and gas production to drop, resulting in layoffs and lost sales.
“These two situations, as they are resolved, will contribute to future GDP growth,” Chow says. He points out that consumer spending expanded at a 4.3% annual rate for the quarter, exceeding expectations. Also, home building and remodeling grew at a 4.1% rate — the third consecutive quarterly expansion.
The important statistic to remember is that consumer spending makes up almost 70% of the U.S. economy. “Anything that supports the consumer will boost the economy long-term,” he says, but warns, “It is best not to put too much concern on volatile monthly data, but to focus on the underlying trend seen in longer-term data.” With that in mind, he outlines the trends favoring the American consumer in 2015 besides the improved labor market:
- Energy prices remain low. Despite the rebound back above $50 a barrel, the trend toward oversupply and lower demand since last July will keep prices down.
- Wage growth is inching up faster. Average hourly earnings rose 2.2% for the 12 months ending January 31. Moreover, the 0.5% gain in January was the best since late 2008. Walmart announced an increase in its minimum hourly wage from $7.25 to $9 for 2015 and to $10 in 2016, which may prompt other big companies to follow suit. In the U.S., roughly 1 out of every 100 people currently employed work at Walmart.
- Home equity is still on the rise, but at a slower pace. Home prices have been increasing for more than two years, giving homeowners more confidence to spend.
- Consumer confidence has been climbing since the second half of 2014. The January University of Michigan Index of Consumer Sentiment soared to highest level since January 2004. The Conference Board Consumer Confidence Index also jumped sharply, reaching its highest level since August 2007.
“Another trend to watch for in 2015 is growing household formation,” says Chow. “The Great Recession resulted in a huge number of Millennials returning to their parent’s home or deciding not to leave.” But recently, Deutsche Bank chief international economist Torsten Sløk observed a spike of nearly two million new households over the last several months. Though reasons for the spike are unclear, some experts believe the improving economy is encouraging Millennials to finally strike out on their own. “This trend could lead to a rapid increase in demand for housing in the near future,” says Chow.
“As for the deteriorating global economy, it’s already showing signs of life,” says Chow. In January, Markit's German Composite Purchasing Managers Index of Manufacturing and Services came in at its best in seven months, increasing to 54.3 from 53.5. The same index for France recorded its best score in three and a half years. Factories in the U.K are expanding. Japan just came out of recession in the Fourth Quarter. However, China and Russia’s economic data is contracting in 2015. Chow expects both countries to continue to worsen. Meanwhile, with the strong dollar, it would be a great time to attend a trade show or two overseas and partner with overseas organizers.
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