THERE is a spring in America’s step these days. A revision released this week raised annualised economic growth in the third quarter to 3.9%; it has averaged more than 4% in the past two quarters. The irrepressible stockmarket keeps hitting new highs, the most recent on November 26th. Job growth is accelerating. This is all the more remarkable because the rest of the world has hit the buffers. Japan has slid into recession, Europe is flirting with deflation and China has cut interest rates as growth flags. On November 25th the OECD, a club mainly of rich countries, said its members’ economies will grow just 1.8% this year and 2.3% next, about half a point slower than projected in May. Risks, it said, are on the downside.
Why the divergence? In part, it is a statistical quirk. America’s economy shrank in the first quarter, so its recent strength is from a low base. Output in the third quarter was up an unspectacular 2.4% from a year earlier; the pace of growth in the current quarter will probably be similar. That is still much better than the rest of the world, though, for which there are two main reasons: trade remains a small part of America’s economy, and the rest of the world’s misfortunes actually help, by lowering interest rates and the oil price.
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Bruce Kasman of JPMorgan Chase says only three times in the past 25 years has the dollar risen and oil prices dropped as much as this year: in 2001 and 2008, when the world was entering recession, and in 1997-98, during the Asian financial crisis. The latter event was followed by a consumption boom in America, and he reckons it is the best parallel with the present. Global consumption, he notes, has been inversely related to headline inflation in recent years and this time will be no different. Lower inflation in America, he reckons, will boost purchasing power by 2% at an annualised rate over the current and coming quarters.
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