Does The US Recovery Affect Us All?

It’s an expression most of us will be familiar with: “When the US sneezes, the world catches a cold.” It basically alludes to the fact that the US economy is the principal driver of global trade and economic growth. 

In recent times, clearly, China and the Far East, in general, would probably now dispute that claim (and all the more so given that the US is involved!) But, the fact remains that what happens in the US does impact growth and jobs around much of the world, especially in Europe. 

So as the world recovers from the pandemic, should we be worried about conflicting economic indicators coming out of the US? Is the recovery there about to stall? Or is this just a minor bump in the road ahead? 

Let’s take a quick look at what we know!

The Bad News

Where there’s bad news, it’s always best to get it out the way. Consumer spending forms the most significant component of US Gross Domestic Product (GDP). At the moment, the indications are that this may be slowing down, so the outlook is currently less than ideal. Back in July, the retail sales (including both online and offline) were down 1.1% on the prior month. No doubt the major contributing factor was the decline in car sales.

Hand in hand with this went a decline in consumer confidence. In fact, US consumer confidence in August dropped to its lowest level since February. One US official commented, “Concerns about the Delta variant [and] rising gas and food prices resulted in a less favourable view of current economic conditions and short term growth prospects.” Or, as most people would say, US consumers were worried!

Most worryingly of all, perhaps, the private sector of the US economy added only added 374,000 jobs in August. While the figure sounds colossal, it does need to be seen in perspective – it was well below the expected figure of 613,000!

The Good News

Now for the good stuff! The US’s manufacturing sector has strengthened, largely driven by an increase in new orders. The Purchasing Managers’ Index increased from 59.5 in July to 59.9 in August, so it shows promising signs of being on the ‘up.’ The housing sector remained strong, with one index measuring US house prices showing a 19.1% annual increase in June 2021. 

…And remember those retail sales that fell in July? In August, they were up, albeit by only 0.7%. 

The simple truth is that the picture from the US is a mixed bag. Some sectors are doing well. Others are doing badly – and the reality is that it is quite likely to change on a monthly basis. There are also other external factors at work. Sales of cars and auto parts dropped 4.5% in August. But, that was as much the result of the computer chip shortage as it was by any unwillingness to buy from the American consumer.

So is the US recovery about to stall?

While no one knows definitively whether the US recovery will stall, the simple answer is that the recovery from the pandemic will not be smooth. As we have already borne witness too, different countries will recover at different rates, and likewise, different economic sectors within individual countries. The US will, no doubt, suffer the same trend, though, very clearly, what happens in the US will continue to affect other economies, especially those in the West. 

Keeping a careful eye on your finances will be important, as will keeping a cool head through all of the ‘ups’ and ‘downs. Situations like this simply emphasise that financial planning is a journey, and it underscores the importance of regular contact with clients. Rest assured that we are always working on your behalf and we are always available if you have any concerns. 

Written by Ian Barnett

Ian is an experienced Chartered Financial Planner as well as being a Fellow of the Personal Finance Society, with over 25 years’ experience in the financial services industry.  With a broad range of client experience and expertise, Ian specialises in financial matters from Pre-Retirement Planning to Inheritance Tax Planning and all points in between.

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