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Tags: economy | hysteria | growing | global

A Good Trade: Slower but Longer Growth

A Good Trade: Slower but Longer Growth

(Dollar Photo Club)

Dr. Edward Yardeni By Thursday, 06 October 2016 10:47 AM EDT Current | Bio | Archive


There seems to be mounting hysteria about the prospects for the global economy. Debbie and I aren’t all that concerned. There certainly is less global growth during the current economic expansion than previous ones, but that doesn’t mean it’s not sustainable. Indeed, if the tradeoff is slower growth for a longer period of growth, that’s not a bad deal.

Yet Tuesday’s Bloomberg posted an article titled “World Leaders at IMF Meeting Face Existential Threat to World Order.” That was certainly a sensationalist headline. When I clicked on the link, the article that actually popped up was titled “Backlash to World Economic Order Clouds Outlook at IMF Talks.” The story noted: “Policy-making elites converge on Washington this week for meetings that epitomize a faith in globalization that’s at odds with the growing backlash against the inequities it creates.” The elite are gathering at the annual meeting of the IMF and World Bank.

Nevertheless, the IMF’s World Economic Outlook that was just released left July’s projections for global growth unchanged at 3.1% this year following 3.2% last year. Next year’s estimate remained 3.4%. On the other hand, US growth was lowered to 1.6% this year and 2.2% next year.

A CNN article was titled “Yes, this is the slowest U.S. recovery since WWII.” I was quoted in the piece as follows: “Economist Ed Yardeni of Yardeni Research put together over 20 pages of charts comparing this recovery to prior ones. He calls this ‘one of the weakest’ recoveries, but he’s hesitant to dub it the absolute worst once you look across a wide range of metrics.”

In that chart book, we compare real GDP during this expansion to the previous six. It has been among the worst, but not across all categories of real GDP. More importantly, it is starting to beat the expansion that started in 2001, which is hitting the 2008 recession now on a comparative basis.

Our bet is that this could turn out to be the Forrest Gump of expansions, running a lot longer than anyone can believe.

Consider the following upbeat economic indicators for the US and overseas economies:

(1) US. It’s neither a boom nor a bust in the US. While the descriptive term “secular stagnation” fits the global economy, I don’t think it’s valid for the US, where the unemployment rate is down to 4.9% (Fig. 1). Job openings are at a record high (Fig. 2). Private-sector employment gains have exceeded 150,000 per month for 40 of the last 41 months (Fig. 3).

The ATA Truck Tonnage Index rebounded smartly during August almost back to February’s record high (Fig. 4). Medium-weight and heavy truck sales rebounded in September following several months of decline, probably related to the energy sector’s recession (Fig. 5). Granted, US motor vehicle retail sales have stalled, but the 12-month average through September was 17.5 million units, matching previous record highs (Fig. 6).

(2) Eurozone. While “secular stagnation” seems to be a more fitting description of the Eurozone economy, there’s surprising strength in retail sales. The volume of such sales excluding motor vehicles was up 1.7% y/y during August, based on the three-month average, to a record high, and remains on the solid uptrend that started in 2014 (Fig. 7). The rebound is widespread in the region. (See our Eurozone Retail Sales.) August passenger auto registrations, on a 12-month basis, rose to the highest pace since fall 2010 (Fig. 8).

(3) China. Railways freight traffic rose 1.0% y/y during August in China (Fig. 9). That’s not much, but it is the first positive comparison in 32 months! China’s PPI was down 0.8% y/y during August, but that was the best reading since April 2012.

(4) Global PMIs. The Global Composite Output PMI edged up to 51.7 in September (Fig. 10). Comparable resilience is shown in both the Developed and Emerging components (Fig. 11 and Fig. 12).

(5) Country PMIs. September’s batch of PMIs showed some notable pockets of strength. The UK M-PMI soared to 55.4 from 53.4 in August and 48.2 in July, while the Eurozone M-PMI edged up to 52.6 (Fig. 13). So far, there is no evidence that Brexit is weighing on either economy. In the Eurozone, Germany stood out with an M-PMI of 54.3 last month (Fig. 14).

In the US, the NM-PMI jumped from 51.4 during August to 57.1 in September, while the M-PMI edged up to 51.5 (Fig. 15). Japan’s M-PMI rose to 50.4 during September, the first reading above 50.0 since February. However, Japan’s NM-PMI fell to 48.2. China’s M-PMI was 50.4, while its NM-PMI was 53.7 last month (Fig. 16).

What about the outbreak of protectionist sentiment? There was a similar outbreak during the Reagan administration. The administration’s first major protectionist move was pressuring Japan into accepting so-called “voluntary restraints” on the export of autos. U.S. Trade Representative Clayton Yeutter boasted that the administration’s trade policy was “extremely aggressive.” “Some of our trading partners have complained loudly about what they see as high-handed American practices,” he said. “But that won’t dissuade us from protecting our interests.”

President Reagan joined the chorus of protectionist statements when a 100% tariff was placed on selected Japanese electronics products. “The health and vitality of the US semiconductor industry are essential to America’s future competitiveness,” he said. “We cannot allow it to be jeopardized by unfair trading practices.” He declared that he imposed the tariff “to enforce the principles of free and fair trade.” White House spokesman Marlin Fitzwater followed up by saying, “[W]e want to be fair traders as well as free traders.” (For more, see the Cato Policy Analysis titled “The Reagan Record on Trade: Rhetoric Vs. Reality.)

What about Trump? He hasn’t won yet, and if he does win, he already has clarified his position by saying he wants to renegotiate our trade treaties, not repeal them. What about the Trans-Pacific Partnership (TPP), which both candidates now oppose? Melissa and I conclude that it has more significance for international political relations than economic ones.


Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.


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Our bet is that this could turn out to be the Forrest Gump of expansions, running a lot longer than anyone can believe.
economy, hysteria, growing, global
Thursday, 06 October 2016 10:47 AM
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