Overseas slowdown will cause more pain in the US

Exports are virtually the only bright spot in the American economic picture, greatly helped by a cheap currency and robust economic growth in the rest of the world. Until now. 

In an article today, Joseph Trevisani argues:

  • European statistics have turned drastically down in the past few months. European Monetary Union [EMU] Economic Sentiment figures for business and consumers are at multi-year lows. The Purchasing Managers Index for Manufacturing and for Services have both been below 50 for two months now. Retail Sales, Industrial Production and New Orders are weak. The ECB continues to hold the rate sword aloft threatening further hikes.
  • If the US remains quiescent then the decision on the immediate fate of the dollar will depend on how far EMU growth falters. If second quarter EMU GDP is negative, the dollar will strengthen.

At least the prospect of the Fed rising interest rates in the US (where else?) has faltered now that the commodity boom seems to be correcting (for now). But this prospect might not last. At least there is one benefit from stalling growth in Europe, the ECB (European Central Bank) is now less likely to hike interest rates some more any time soon.

Growth in China also seems to be faltering, as is witnessed by the  PMI index:

(The PMI index stands for purchasing managers index).

On the one hand, one expects a boost from the Olympic Games, but traffic has been curtailed and numerous factories closed to clean up the air, and monetary conditions have been tightening in China for quite some time because of the spectre of inflation.

And, of course, exports to the US (and now Europe, which is an even more important market for the Chinese) has been affected by the downturns there.

It now looks like the only bright spot in the US economy could have its rug pulled from underneath it.