Photo: Paul Goyette, Flickr
Is the US economy going to go the way of Europe or Asia?After following PMI reports over the past several hours, it’s obvious that this is the key question for the US.
In Asia, the economy looks solid. The official Chinese PMI number surged nicely. Related numbers in South Korea and Taiwan also confirmed that growth engine is still kicking. It appears, perhaps, that some of the hard slowdown seen earlier this year was the result of the Chinese New Year, and in particular it being the Year Of The Dragon, which is the biggest of the Chinese New Years.
Meanwhile, part of the bull case on China, as articulated by Morgan Stanley, is the ability of Beijing to stimulate the economy further, both through monetary and fiscal channels.
Europe on the other hand is… Europe. It’s very bad.
You can just look at this chart here. There’s contraction all over the place, and the “core” of Europe is getting bad quickly. The periphery is a total trainwreck.
And unlike in Asia, authorities have very few levels to pull. They’re all obsessed with austerity right now, and the ECB is not eager to do more stimulus.
The US is kind of in between, and its fate is connected to both Europe and Asia. Europe is the US’ biggest trading partner, and it accounts for a big chunk of S&P earnings. Europe’s economy is mature, aged, and debt-laden like ours. On the other hand, Asia is a rapidly growing trading partner.
And we’d argue that from a policy standpoint, we’re much closer to China. We’re not debt constrained. We don’t have to go into austerity mode if we don’t have to. And Bernanke knows he has more levers to pull if he wants them.
The data in the US has been mixed lately. Overall, people still talk about a firming recovery, but a quick glance at the Citi Economic Surprise Index shows that recently we’ve had a big string of misses.
We’ll know a little more when our ISM comes out at 10:00 AM today, and we’ll know a lot more by the end of the week, which will be stacked in terms of economic data.
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