The United States and the euro area continue to diverge. Their growth patterns remained fairly close to those of the end of 2010. Since then, the divergence of their economies has dramatically carved the point that it became one of the major economic events of the post-crisis. The differences are impressive. The US recovery is gaining strength month after month, when the risk of a new recession or a period of “prolonged stagnation” increases, according to the Organization for Economic Cooperation and Development (OECD), in the Eurozone as its growth loses speed.
Growth engines, however, are stopped in the euro area that suffers, according to the American Catherine Mann, chief economist of the OECD, a demand problem. According to Eurostat, household consumption is increased by only 0.3% in the second quarter and investment there fell 0.3%. Anything that does not allow restarting the machine in a world where, in the opinion of the major international economic organizations, there is less to be expected from global trade.
The US economy has posted its best two consecutive quarters since 2003 (+ 4.6% and + 3.9%), a performance hailed by the Dow Jones hit a new record Tuesday, November 25 to 17 822 points after the upward revision of gross domestic product in the third quarter; growth in the euro area was only 0.1% and + 0.2% during the same period. Domestic demand in the US is robust (+ 3.2%). Consumer spending, which accounts for over two thirds of the US GDP, grew by 2.2%, and business investment by 7.1% in the third quarter.
“Quick Remediation of the banking system after the bankruptcy of Lehman Brothers in September 2008, early restart of credit, household deleveraging, the real estate recovery, reduced labor costs are dramatically improving business margins, industrial reboot, flexibility of productive system, reduction of US energy bill with shale gas…” the list could continue to identify the strengths of the US economy, according to Inna Mufteeva (Natixis).
United States: the improving employment is confirmed
The improvement in the employment situation is confirmed in the United States. The US economy created 321,000 jobs in November, according to figures released by the Department of Labour, Friday, December 5. This figure is well above forecasts of economists who had forecast the creation of 230,000 jobs. The unemployment rate, however, remained stable at 5.8% of the workforce, its lowest level since mid-2008. But 2014 promises to be the best year in terms of recruitments since 1999.
The monthly pace of job creation has never been slowed since January 2012. For ten consecutive months, the US economy has created more than 200,000 jobs per month. Not since March 1995 to find such a series. “It’s a very big surprise: nothing in the leading indicators showed that the increase in November is spectacular,” said Thomas Julien, an economist specializing in the US at Natixis in New York.
The figures of September and October have themselves been revised upwards. Gains were 271,000 respectively (instead of 256,000, according to the first estimate) and 243,000 (instead of 214,000). This dynamic is consistent with the growth of the economy as a whole: the US GDP grew by 1.15% (4.6% annualized) in the second quarter and nearly 1% (3.9% pace annualized) in the third.
The main recruitment areas were business services, with 86,000 creations, health (29 000), industry (28 000) and distribution (50 200). The contribution of this sector on the eve of New Year celebrations is not surprising. Dynamics of Thanksgiving and Christmas is even stronger in 2013 delivery services such as UPS or FedEx having underestimated their need for labor. Net gains in this sector amounted to 4,700 jobs.
Moderate wage raise
This optimistic picture, however, must be qualified by wage growth, which remains very moderate. The average hourly wage rose 9 cents to 24.66 dollars in November. In a year salaries rose 2.1%, which indicates that the dynamics of employment is still not enough to put pressure on employers to increase wages.
In addition, the indicators scrutinized by the Federal Reserve (Fed) to judge the actual improvement of the labor market are not improving in small steps. There are still over 2.8 million unemployed more than six months. This is 30% less than a year ago, but this category still accounts for over 30% of the unemployed. The experienced part-timers are also significant with 6.9 million people affected. In the end, the participation rate, that is to say, the proportion of Americans who have a job or who seek it, remains at its lowest level since the 1970s. This rate is only 62,8% in September, while it was still 66% before the financial crisis.
When considering the damage of part-time employees and discouraged to seek work because they do not find it or because no job matches their requirements, the unemployment rate is not 5.8 %, but 11.4%, an improvement of only 0.1 points compared to October. For the record, during the decade before the financial crisis this rate ranged between 8% and 10%.
Nevertheless, the increase in employment (+1.6%) is now higher than that of the active population (0.4%). “There’s a faster than anticipated normalization of the labor market,” says M. Julien. “This should advocate more aggressive comments from the Fed on the next rise in interest rates.” The central bank Monetary Policy Committee will meet again on 16 and 17 December.
Europe lagging behind
According to Philippe Waechter (Natixis Asset Management), the primary cause of the US-European economic divergence lies in the different analyzes of the crisis were made in Washington and Brussels (and Frankfurt). In late 2008, Cristina Romer, top economic adviser to Barack Obama, had made the analysis stating that “the current economic shock was violent and that we should not repeat the mistake of the 1930s and quickly gained the support of Federal Reserve [Fed]. The low point of the crisis was reached in the US in the second quarter of 2009, after the period of almost continuous economic recovery, thanks also to some $770 billion spent to support the business,” analyzes the economist. “The US authorities, she added, also observed what was going on in the household side and decided to let them rebuild their wealth. The Europeans do not take this measure against a recession they first analyzed as an economic crisis.”
Flexibility of the Fed
Thus, macroeconomic policies were “much more pragmatic and quickly implemented in the US,” says Jean-Michel Boussemart (WCC-Rexecode). The Fed cut rates in 2008, while the European Central Bank (ECB) postpones its. “In a Union of 28, you have more time to make decisions. There was the ignition delay in the money field in Europe,” says Boussemart. The speed of response of the Fed and its flexibility thus have another beneficial effect across the Atlantic: US rates dropping faster than European rates, the dollar falls against the euro, strengthening the competitiveness of enterprises.
Meanwhile, the United States, which are not constrained by the Stability Pact, let evolve their public deficits over the water and do not impose an austerity addition to their population. In contrast, in 2011 the EU applies very restrictive policies. ECB raises its interest rates in April and July. “The 2011-2012 austerity policies have been very close to what had been done by the United States in the 1930s, they have adjusted the private sector to adjust to prevent a shock and cause large-scale demand collapse,” says Mr. Waechter.
Somehow, everything else follows. The ECB, which has committed long after the Fed to unconventional monetary policy, is stuck facing a European economy at a standstill. As its president Mario Draghi is trying to bring down the euro to generate a break that allows boost growth, Janet Yellen wonders when it is going to let US rates rise.
There are indeed some shadows in this picture: one resides, according to Christine Rifflart (OFCE), in increasing social exclusion. The US employment rate remains lower (59.2%) than before the crisis (63%). But above all, in a world where growth slows, the US cannot in the medium term avoid suffering from the stagnation of the Eurozone, a leading economic region.