Can the U.S.Go It Alone, Carry the Sputtering Global Economy?

The United States is the only large economy showing any signs of health right now. In the simplest of terms, strong U.S. growth is needed currently to provide opportunities for struggling European nations and Japan as well as emerging markets that aren’t as hot as in previous years. The problem is that the domestic recovery, and thus consumption, is not robust enough to carry that burden, and there are doubts that the pace of growth in the US can increase or even be sustained.

The world economic situation is really not good, and few solutions exist that make much difference in the short run. The U.S. is not as reliant on export activity as some nations, but it still accounts for 15% of the GDP. That places exports in third place as far as GDP is concerned—behind health care spending and manufacturing. The prospects for expanded export activity are also somewhat grim as the dollar continues to gain against all the major world currencies. The U.S. business community will face increasing pressure from competitors in other nations, as it is easier to sell at cut-rate prices when their currencies are low compared to the dollar. The much-anticipated rebound of manufacturing in the U.S. could well be halted and even reversed as the dollar gains. Remember: U.S. consumers are primarily price-driven, which can tilt them towards cheaper imported goods, coming at the expense of domestic producers. That will likely affect domestic job growth in a negative way.

As the world hopes and assumes that the US economy will recover fast enough to pull the rest of the globe along with it in 2015, analysts remain unsold that the U.S. has the strength to pull even itself together in the medium term. The basic critique therein is that there focuses on the substantial weakness remaining in the economic fundamentals. The biggest concern emanates from stagnation in critical areas such as wages—slow or no growth in wages means limits on consumer spending. And the huge price drop of gasoline isn’t going to have more than a short-lasting effect on people’s disposable income, as a time will come when those prices start to climb again.

- Chris Kuehl, PhD, NACM economist and Armada Corporate Intelligence co-founder

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