Is the U.S. doomed to sink with Europe?
COMMENTARY My colleague here at the University of Oregon, Tim Duy, posted two graphs to dispute claims that the U.S. will be insulated from problems in Europe. First, here's Eurozone Industrial New Orders plotted along with New Orders from U.S. Manufacturers (click on the image for a larger version):
And here's the same data plotted as year-over-year percentage change instead of levels (click for larger image):
As you can see, the two series have moved in lockstep since the mid 1990s.
The correlation isn't perfect and this doesn't prove the case that the U.S. is doomed. It could
be that both data series are responding to a common set of factors and a shock to the euro area alone will produce a different reaction here at home.
Nevertheless, these graphs make the claim that the U.S. has decoupled or remains insulated from the fortunes of Europe look like a very bad bet. If Europe has more trouble it could cause significant disruption to the U.S. economy as well.
We have enough trouble already, and another source of difficulty
is the last thing the U.S. needs. As Tim Duy says: "It is far too late to prevent severe
recession. The best policymakers can hope for at this point is too avoid a
depression."
I'm a bit more optimistic than Tim, but time is running out. So let's hope that the European Central Bank eventually comes through and fulfills its lender of last resort obligations -- something it has resisted to date -- and that the very worst outcome for both the euro zone, and the U.S., can be averted.
