The views expressed in this column are those
of the author and not SVB Financial Group.
R.O.C.K. in the U.S.A.
R.O.C.K. in the U.S.A.
R.O.C.K. in the U.S.A.,
Yeah, Yeah!
Rockin' in the U.S.A.
- John
Mellencamp
Watching the global economy can be rather perplexing these
days.
It seems you need to be up to speed on everything from Chinese
wages to Greek pensions in order to understand where the global economy is
headed. And for those of us over 40 (Yes, given the extreme changes in
technology over the last 10 years, 40 can easily put you over the hill these
days.) keeping up with a 24-hour news cycle is exhausting.
The Internet
has brought all kinds of fascinating information right to our fingertips and
smart phones have allowed us to access the Web from virtually anywhere on the
globe.
On the side of the reader, this never-ending quantity of data can
mask the pieces of information that provide the true story. I believe this is
happening today with regard to global economic activity.
My guess is you
will be surprised at the chart below, which displays the relative size of global
economies.
Source: Bloomberg, SVB Asset Management
As you can see, the U.S. economy is $14 trillion
with the U.S. consumer residing around the $10 trillion neighborhood. The second
largest economy is Japan, sitting at $5 trillion — just half of the U.S.
consumer.
Greece doesn't even show up on this chart.
Over the past
10 quarters, U.S. consumers has fallen off pace by reducing their level of
spending 4 percent or about $400 billion. For Japan to pick up the slack, its
entire economy would have to grow an additional 8.2 percent — a rate it has not
achieved since 1990.
But even this is not a fair comparison. It is end
consumption that drives economic activity. Wiping out this most important type
of demand in the U.S. has effectively set the entire world economy out of
kilter.
The bottom line is that our global economic woes stem entirely
from a U.S. consumer who is burdened by an unstable housing market (as I've
discussed in previous columns).
The U.S. consumer has been the driving
engine of the global economic train for perhaps much too long. But going
straight from the engine to the caboose is far too painful for the global
economies, especially considering there is no other consumer base ready to take
the helm (China, you are on deck, though!).
Instead, it would be better
for the global economy if the U.S. consumer were to temper her growth in the
coming decades while other economies catch up.
Other nations whose wealth
is tied to the economic activities of the U.S. consumer should in the interim
provide some consideration in order to get the American consumer back in the
engine room — even if only temporarily.
Key
Developments
June payrolls grew a disappointing 83,000 in the private
sector, resulting in 125,000 total jobs lost after considering a decline of
225,000 census workers. Though this marks the sixth straight month of private
sector job creation, the pace remains disappointing with just 600,000 jobs
created after losing some 8 million in the two years ended December
2009.
Personal spending rose 0.2 percent in May along with a 0.4 percent
increase in personal incomes. Much of the gain in incomes resulted from
temporary census workers to the tune of $5.7 billion.
After making a
solid comeback since early 2009, the ISM Manufacturing Index slipped to 56.2
from 59.7 in May. The rate of change was slower for all sub-indices except
imports, which is probably due to the recent strength in the dollar.
The views expressed in this column are solely
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or SVB Asset Management, or any of its affiliates. This material,
including without limitation the statistical information herein, is
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such, we do not represent that the information is accurate or complete.
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