Call it the American manufacturing renaissance, the American resurgence or the re-rise of America, but while the euro zone’s economic woes accelerated last month and China’s slowdown looked likely to extend to a seventh quarter, surveys on Wednesday showed that the United States proved to be the economic bright spot with better-than-expected news on services and jobs.
Crisis in Europe, slowdown in China, but surprising economic improvements in the U.S.
Purchasing managers indexes (PMIs) suggested the aggressive actions taken by the world’s central banks over the last two months have yet to convince consumers to start spending again. This dwindled any chance of the euro zone seeing growth again before next year, while in China, growth of the normally robust service industries weakened to an almost two-year low last month.
It is a totally different picture in the United States however.
The pace of growth in the massive U.S. services sector picked up more than expected in September on the back of new orders, according to an industry report. And a private sector employment report showed companies added more staff than expected last month.
The dollar hit a fresh two-week high against the yen and the Institute for Supply Management (ISM) said its U.S. services index rose to 55.1 last month from 53.7 in August, topping economists’ forecasts for a slight decrease to 53.2. The news comes on the heels of a comparable report on Monday for U.S. manufacturing that was surprisingly strong - another sign of economic resiliency.
“It looks more like things are heading in the right direction,” said William Larkin, fixed income portfolio manager at Massachusetts-based Cabot Money Management. “It is the new reality.”
While the U.S. economy has managed to deflect some of the huge uncertainty emanating from Europe, Asian countries that rely heavily on exports to rich Western peers have not fared so well. China’s official services PMI fell to its lowest point since November 2010, as slow growth in manufacturing finally began to feed through to the rest of the economy.
U.S. Dollar rallied to 2-week high against the Yen after upbeat economic data
Weak construction services and transport, as well as lackluster new orders overall, pushed the PMI to 53.7 in September from 56.3 in August, signaling economic growth will slow for a seventh quarter. A Reuters poll last month forecast China’s annual economic growth could ease to 7.4 percent in the third quarter, before picking up to 7.6 percent in the final three months. That would likely leave growth for 2012 below 8 percent, its lowest in more than a decade.
BlackRock Inc. CEO s Laurence D. Fink reaffirmed the optimism, saying the U.S. economy is a year away from having a robust growth, which mean it may now be the best and last chance to bet on U.S. equities on the cheap. BlackRock is the world’s largest asset management firm with $3.65 trillion assets under management.
When you talk about macro issues in the U.S., our banking system is far better than most banking systems and our housing crisis is 90 percent behind us, Fink said in an Oct. 1 interview from his New York office.
CEO of BlackRock Inc, the world’s no.1 asset management firm: One more year and the U.S. will enter a stage of robust growth
The two most expensive purchases most Americans make: cars and homes, are likewise showing progress. Cheap loans and a bounty of fuel-efficient models enticed people to buy new vehicles at a brisk pace last month, and the nation enjoyed another year-over-year surge in home prices in August - a sign that the housing industry is making a sustained comeback.
Both trends reflect rising confidence in the economy: more families are replacing aging cars, and rising home prices are leading more would-be buyers to conclude that a home is a good investment again. The two surveys last week also reported improving consumer confidence.
The one flank of the U.S. economy thats marching steadily back is the sector that once seemed the weakest: Automotive. The auto industry in September reached an important milestone that few other sectors can claim. Carmakers sold cars and light trucks at an annualized rate of 14.9 million, taking into account seasonal adjustments, according to researcher Autodata Corp. Thats the best pace since March 2008, before the failure of Lehman Brothers Holdings Inc that plunged America into sub-prime mortgage crisis.
U.S. auto industry bouncing up: Auto and housing are the 2 most important measures of consumer confidence
As we look forward, we continue to be encouraged, Kurt McNeil, vice president of U.S. sales for General Motors Co. (GM), who went bankrupt in 2009 but again became the world’s no.1 automaker last year, said yesterday on a conference call. Three years ago, a series of bankruptcies hit American automakers such as GM and Chrysler Group, as well as Ford Motor Co.s reorganization. Now they have capped a role reversal from the depths of the recession, and is showing how domestic companies can recover from even the most debilitating setbacks.
While the broader American economy remains weak, growing only at a meager 1.3 percent annual rate in the second quarter, plagued with high unemployment at 8.1 percent, and a risk of falling off a “fiscal cliff” early next year, many Americans appear to be looking past the economy’s troubles.
Surveys by the private Conference Board and the University of Michigan show that while consumers are anxious about current conditions, they’re more optimistic about the future.
Apart from automotive, another weakest sector of the American economy: housing, whose 2008 collapse triggered American financial crisis, is gaining on the recovery. The steady rise in home prices, coincide with higher sales fueled by record-low mortgage rates, may be pointing towards the closing chapter of the turmoil and the beginning of new growth.
A gauge of home prices calculated by CoreLogic, a private data provider, jumped 4.6 percent in August compared with August 2011. It was the sharpest year-over-year gain in more than six years. Other home-price measures have also risen. The Standard & Poor’s/Case Shiller index rose in July compared with a year ago, a second straight increase. And an index compiled by a federal housing regulator has reported annual increases.
Despite that though, home prices are still 30 percent below their peak in June 2006, according to Case-Shiller. That was the height of the housing boom.
Other analysts agreed, “So many of them talked about financial doom, but were all here this year, and well all be here next year despite what you might have heard,” Eli Lustgarten, senior vice president and senior analyst at Ohio-based Longbow Research said in MSCI economic forecast conference in Schaumburg, Illinois.
“If the U.S. economy can muddle through the next 12 to 18 months, there would be bright future and it might be poised to enjoy a bull run for three to five years.” Among the tailwinds set to bolster the U.S. economy in the long term are the potential for greater energy independence fueled by the shale boom, and trends bringing manufacturing capacity back from abroad, said Lustgarten.
And it wasn’t only coming from American analysts, neighboring Canadians likewise are eyeing opportunities in the U.S. “There are lots of really terrific businesses that have been slammed because of the economic malaise in the U.S.,” said Larry Sarbit, Winnipeg-based manager of the IA Clarington Sarbit U.S. Equity Fund. “I’m finding the kinds of companies I want at very reasonable prices… We’re buying as we speak.”
“We’re finding an above-average number of opportunities in the U.S.,” said Pavel Begun, partner with 3G Capital Management in Toronto. “Basically the general public is very concerned about a potential double-dip, or that growth will be slower going forward than it’s been in the past. Normally, any time the mood is sour that gets reflected in a larger number of opportunities in the marketplace. But the U.S. equities are extremely cheap now.”