United States – Global economy nexus
IF EVER ANYONE was in doubt about the degree of interdependence between the performance of the United States economy and the global economy, the unfolding of events arising out of the 2007/2008 worldwide financial and economic crisis should have put those misgivings to rest. And I really do hope so!
Accepting the fundamental fact that when the United States economy is in recession, economic activity all around the world typically slows down.
In times of boom in the American economy, global financial and economic prosperity soars. Clearly, therefore, the movements taking place in key macroeconomic variables in the American economy must have serious implications for countries internationally and should warrant some attention from them in relation to adequate fiscal and monetary policy responses.
Within that context, the recent reports on the performance of the United States economy should bring welcome relief to a number of countries seeking to maintain some levels of financial and economic stability, let alone emerge from the recent economic slumps confronting them. But what precisely do the reports say about the major macroeconomic aggregates in the United States?
According to the Bureau of Labour Statistics, the world’s largest economy added 162 000 jobs in July 2013. Most of the new jobs were created in the retail, restaurants, and financial services sectors, typical of an economy that has moved into the phase of mass consumption and in which the services’ industry dominates economic activity.
The number of jobs added in the previous month is exciting news because it is vaguely in excess of the estimated 150 000 minimum required to generate vigorous economic growth in the economy. Simultaneously, there is bad news.
You see, most of the new jobs have been created in sectors that are well known for the minimum wages they offer – a phenomenon that can do little in terms of lifting people out of the federal poverty echelon.
Second, economic activity in the United States expanded by 1.7 per cent during the second quarter of calendar year 2013.
Although fairly impressive for such a large economy, the 1.7 per cent still falls short of the two to three per cent “ideal” economic growth rate for the United States based on economists’ estimates as well as the Federal Reserves’ targeted 2.3 per cent to 2.6 per cent growth for the fourth quarter.
In the view of one analyst: “What’s more important to look at is the underlying strength of the growth we are getting. It’s being driven by exports and residential construction. It’s also growing despite an untimely cutback in government spending. These are solid signs of economic strength. That’s far more important than the Federal Reserves’ policy.” I concur!
In keeping with growing confidence in the American economy, businesses have been steadily increasing their orders for durable goods in the past three months.
Specifically, these orders rose by 3.6 per cent in April, 5.2 per cent in May, and 4.2 per cent in June.
These continuous increases in orders of durable goods (for example, capital equipment) suggest that businesses remain positive in their outlook for the American economy and that job creation can intensify in the months and years to come.
On the basis of growing potential for new job creation, higher economic growth prospects, and expanding investments by private companies, the United States economy stands ready for take-off.
And if that happens, the global economy will prosper and Barbados as well as other Caribbean countries could reap significant financial and economic benefits – benefits that are desperately needed at this critical juncture.