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Germany, France and Japan Are In Recovery. When's Our Turn?

In the 2009 global economic race, the U.S. has been left behind as our large-economy colleagues have returned to GDP growth. Most forecasters are looking for a turn this year, but with two-thirds of the economy still shrinking, it's tough to make the math work.

Japan and Germany are two of the world's top export-driven economies, and selling into the stirring global activity is what pulled them into positive territory, says Jim Pressler, international economist at Northern Trust in Chicago. The graph below shows recoveries in 2Q 2009 to 0.3 percent growth by France and Germany, and a 0.9 percent gain for Japan.


The U.S. economy is lagging, Pressler says, losing 0.3 percent in the quarter, because

We're the ones that 'built the bomb,' the financial crisis, and it worked on both our internal and external economies - consumers weren't buying either local or foreign goods. We have more structural imbalance here than France, or Germany, or China, so we are going through a more dramatic correction.
But Northern Trust, too, has moved its forecast of a return to growth ahead, to 3Q 2009 from the end of the year. Pressler concedes that a revision to show growth in 2Q is possible, but he doesn't expect it.

But the U.S. economy is improving, along these lines:

  • Industrial production turned positive in July, with a one percent increase; it had ticked down every month since February 2008. That's just one month, however, and the gain was greatly the result of a 20 percent increase in vehicle assemblies, due in turn greatly to the Cash for Clunkers program.

Sorry the graph below is so tiny (click on it for a larger version). But it illustrates how deep this recession has been. The blue series is an index of industrial production, and the red series is the size of the labor force.


  • Another positive: the Housing Market Index of the National Association of Home Builders turned up convincingly in April, although it is still near the bottom. Housing starts also have turned up in the last few months. Long-term interest rates are holding their recent lows, so financing costs shouldn't be standing in anyone's way. There's not a big "however" in this case, as the NAHB deems the current inventory of unsold new homes (8.8 month's worth) "relatively thin" even at the current rate of sales.
But the U.S. stock market is sharply lower today (Monday August 17), discounting Friday's report of falling consumer confidence, according to AP:
Stocks are sharply lower and demand for safe-haven government debt is soaring Monday as investors around the world fear that consumers are too anxious to lift the economy into recovery. The losses are extending the selling that began Friday with disappointing consumer confidence numbers.

Reinforcing the consumer gloom, home improvement giant Lowe's reported lower earnings today.

It's hard to see the U.S. economy growing at respectable with more participation from the consumer. The final tiny graph compares employment and consumer spending (personal consumption expenditure) adjusted for inflation. What's striking to me is that even in difficult recessions such as those of the early 1980s, consumer spending flattened out, but didn't really drop the way it has in this slowdown. With two-thirds of GDP still in decline, we're likely still a long way from the one percent Japan has turned in.

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