Just when it appears that the global slowdown will do some serious damage in all regions of the world, the U.S. has apparently bucked the trend. Even though we are not seeing strong growth by any means, the fact is that somehow U.S. Manufacturing and employment are holding steady.
At the same time, several countries within Asia and most (if not all) of European economies are headed in the wrong direction. Earlier this week several provided further evidence that ex-U.S. manufacturing around the world is contracting.
Why is that? Part of the answer may lie in the fact that the U.S. dollar has been declining and there aren’t many catalysts to drive it higher. At the same time, many other currencies have been improving – thereby creating a better discount on U.S. goods. China’s leaders have been working diligently over the past year on slowing their economy. They have been pushing up the Yuan as one of the tools to slow exports in exchange for a growth of domestic demand.
Since June, the strength of the Yuan is causing export demand to fizzle. Obviously this is another reason that China has been so active in the currency markets, supporting the Euro. Sure, we are told that they are desirous of diversifying away from the U.S. dollar, but they also know that the FED has a great deal of power to crush the value of the USD at will. So, as Europe is a major trading partner, it is in their best interests to keep the Euro as high as possible.
The trend for imports has not been as defined, though the most recent reports are showing that it has been improving.
Probably a better gauge of total demand is the recently released ISM Manufacturing report. Now slipping into the contraction zone, China’s powerful economy is starting to show signs of running out of steam.
Contrast that information with the report for the U.S. ISM Manufacturing Index that was published on Thursday. Some of the details and comments from Bloomberg:
- Nov. ISM manufacturing rose to 52.7 vs est. 51.8 (range 50.2-53), highest since June.
- Prices paid rose to 45, matching est. 45 (range 43-52)
- New orders 56.7 in Nov. after 52.4 in Oct.; orders backlog 45.0 after 47.5
- Strong growth’’ in manufacturing, orders “bodes well for an otherwise ailing 4Q,” says Bloomberg economist Rich Yamarone
- While employment conditions “softer,” still in positive territory: Yamarone
On the surface, the China’s currency manipulation, which U.S. officials have been all in a tizzy about, has been nothing more that a means to an end. That, of course, is to shift the focus from the FEDs (“non-currency“) related moves to help offset waning demand of U.S. products. The result has been a re-direction of purchases from other areas to the U.S.. Moreover, the ISM report has a good deal of tech and energy inputs that are holding up well.
Whatever the actual reason may be, the U.S. economy has been VERY resilient in the face of all the recent headwinds.
Can you just imagine where it would be absent the recent calamities?