Foreign crises do little to dent America's economic confidence

The contrast with Europe is stark as the building blocks for continued US recovery settle into place

Share

One of the astounding things of the past week has been how the worlds of economics and finance have diverged from the world of global politics, at least when viewed from the United States. The catastrophe in the skies above Ukraine barely registered in the US financial markets. Shares went down a bit from yet another all-time high but by the close of play on Friday they had recovered much of their poise.

Of course there is a sniff of fear, as you might expect whenever markets have had a long rally, but it is fear about something going wrong at home, not abroad. What seems to matter from the perspective of American finance is what Janet Yellen, chair of the Federal Reserve Board, thinks about the valuation of technology stocks, or whether the company reporting season, which is just starting, will show that US Inc is still thumping out the profits. If the Russian economy tanks in the months ahead, well, that is the effect that the sanctions approved by the US and Europe last week are supposed to have.

It says something about the self-confidence of the US now, a self-confidence based partly on a sense that the economy has indeed reached escape velocity but also on the boom in oil and gas production. Thanks to fracking, the US has this year passed Russia to become the world's largest producer of oil and gas combined. This gives it a very different perspective from Europe: Europe needs Russian gas, America doesn't.

It also does not need Russia as a market. Russia takes a bit more than 2 per cent of Germany's exports, small but helpful, but it buys hardly anything from the US. For all its swagger as a member of the Bric club, which has just approved the founding of a rival to the World Bank, to be headquartered in Shanghai, the longer-term prospects for the Russian economy are pretty poor. It is the only large country in the world where life expectancy is falling, and its workforce is already in decline.

So what does preoccupy the US right now? The starting point is that, given what is happening elsewhere, it is a pretty good place to be. So what matters more than anything else is the health of corporate America. Good revenue figures from Google were more important than events in Ukraine or the Middle East. A lot of cheer was also taken from the evidence that US companies are investing again.

The point is that so far the missing link in the recovery has been the relatively low levels of investment, a rather similar state of affairs as in the UK – though we differ in one crucial regard in that the US has seen rapid productivity gains but poor job growth, whereas we have experienced the reverse. Low investment would suggest that companies don't quite trust the recovery to continue, while their own behaviour would tend to undermine it. Actually companies invest when they are profitable and they start running out of capacity. Both seem to be happening. A survey by Bloomberg suggests that in this reporting season earnings have exceeded analysts' forecasts in more than three-quarters of all cases. Sales are also running ahead of expectations in most cases. Meanwhile spare capacity is shrinking, and capacity use in manufacturing is at last up to its average level of recent years. The building blocks for an investment-led continued recovery are there.

If this is right, it is good news. It is always hard, when looking at the great swathes of data that the US economy churns out, to pick out the signals from the noise. But when data supports what you instinctively feel when you visit a place, then you should take it seriously. Having made several visits to the US this year I do feel that confidence is noticeably stronger than it was a few months ago. The great test will come when the Federal Reserve ends its artificial support of the economy by buying Treasury securities and when interest rates go up. The first happens later this year, the second presumably in the first half of 2015. No one can pretend to know what will happen, but a confident business sector is likely to be able to cope vastly better than one that is running scared. The US business community is not at all scared; rather the reverse.

What does this mean for the rest of us? Several things. One is that the contrast between the US and Europe is particularly stark, for apart from Germany, the European economy is quite weak. A second is that the UK is much closer to the US in economic terms than it is to Europe and will continue to be so for the foreseeable future. A third is that while US share values are certainly vulnerable at present heady levels, as long as the companies keep up their strong performance, maybe the market is not so mad after all.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: SEO Account Manager

£15000 - £20000 per annum: Recruitment Genius: An SEO Account Manager is requi...

SThree: Associate Recruitment Consultant - Global Leader - FTSE 250

£18000 - £23000 per annum + competitive: SThree: As an Associate Recruitment C...

Recruitment Genius: Field Sales Representative

£22000 - £28000 per annum: Recruitment Genius: This family run school photogra...

Recruitment Genius: Area Sales Manager - OTE £42,000

£28000 - £42000 per annum: Recruitment Genius: You will be joining a leading s...

Day In a Page

Read Next
A church in South Carolina burns after a fire breaks out on June 30, 2015  

America knows who has been burning black churches, but it refuses to say

Robert Lee Mitchell III
England's Jodie Taylor, left, and Jill Scott celebrate Taylor's goal against Canada during the first half in a quarterfinal of the Women's World Cup  

Women's World Cup: We should be able to praise England's Lionesses without shaming the men's team

Charlie Webster
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map