The pall of Europe’s debt crisis is obscuring evidence that the rest of the global economy is in decent shape.
Stock markets slumped Friday after European finance ministers said the Greek government must take more steps to secure further aid, triggering the departure of six ministers from Prime Minister Lucas Papademos’s cabinet and fuelling violent street protests in Athens.
But away from the noise and confusion of European capitals, and contrary to the outlooks of gloomy Wall Street forecasters, U.S. companies are steadily hiring and investing, generating momentum that will help offset whatever harm comes from Europe’s troubles.
While Greece plunged deeper into chaos, the U.S. Commerce Department released data showing U.S. imports surged at the end of 2011, the latest signal that the world’s largest economy finally is on track for a lasting recovery. Canada, Mexico and China were among the beneficiaries, as the U.S. trade deficit with its largest trading partners widened.
U.S. imports jumped 1.3 per cent in December, to $227.6-billion (U.S.), the biggest one-month increase since July, 2008. Consumption accounts for about 70 per cent of U.S. gross domestic product, making imports an important barometer of economic health. Demand was strong across industries, including capital equipment such as machinery and semiconductors, which climbed to a record.
The trade numbers follow stronger-than-expected hiring figures, including a report earlier this week that showed the four-week moving average for initial jobless claims fell to 366,000, the lowest level since the end of the recession. Combined, the hard U.S. data describe an economy that is healthy enough to stand without the support of government stimulus.
“We believe the growth in the U.S. is broadly based enough, and has been around for long enough, that it is sustainable,” said Peter Hall, chief economist at Export Development Canada. “The U.S. economy is like a cork under water. At some point, you can’t hold it down any longer.”
The power of the United States as a global economic engine was also evident in Canada’s latest trade figures.
As Prime Minister Stephen Harper toured Guangzhou, China, in a bid to broaden trade links, a new report by Statistics Canada showed Canadian exports to the U.S. soared in December, causing Canada’s trade surplus with its southern neighbour to swell by almost $1-billion (Canadian), to $5.5-billion.
Canadian exports to non-U.S. destinations increased 2.5 per cent to a record $11.8-billion, but overall, the figures were a reminder that Canada’s prospects remain tightly linked to the those of the United States. While that proved difficult during the financial crisis, Canada stands to benefit as the U.S. recovery becomes entrenched.
Yet sentiment remains dim. Recalling their ill-fated enthusiasm of a year ago, Wall Street forecasters speak openly about ensuring they don’t make the same mistake again. Traders are obsessed with how a Greek default would reverberate through capital markets, even though the country’s $305-billion (U.S.) economy is smaller than that of Ontario.
American consumers also are conflicted. The initial reading of the Thomson Reuters/University of Michigan’s consumer sentiment index, released Friday, slid to 72.5 in early February from 75 previously, which was the highest in a year. Overall confidence dipped despite a generally stronger stock market and an acknowledgment that the prospects for employment are picking up.
“Business conditions are better than the perception out there,” Jayson Myers, an economist and head of the Canadian Manufacturers & Exporters industry association, said Thursday during a visit to Washington.
But pessimists are quick to point out that business conditions can change rapidly. The U.S. economy looked strong at the starts of 2010 and 2011, only to fizzle.
Economists at London-based HSBC said in a report this week that there is little reason to be enthusiastic about the North American and European economies until wages start growing more quickly than inflation. Federal Reserve chairman Ben Bernanke said in a speech in Orlando on Friday that the U.S. economy will grow below its potential as long as the housing market remains dormant.
But housing is one of the reasons Mr. Hall foresees strong growth over the next few years. The U.S. housing market has fallen so far that only about half as many homes are being built as are needed to keep up changes in the population. That can only get better, he said.