10/10/2012

By Michael Baxter


The news on the US economy might not be enough to make Barack Obama look a little more confident when he faces Mitt Romney in a debate, but at least it is encouraging.

Here are some recent pieces of evidence.

Number one:

Last week saw the latest Purchasing Managers’ Index (PMI) tracking US manufacturing suggesting that the sector has pulled out of recession. The index rose from 49.6 to 51.5. The index tracking new orders — a good forward indicator — positively soared, rising from 47.1 to 52.3.

Number two:

The PMI tracking US non-manufacturing rose from 53.7 in August to 55.1. Bear in mind that across most of the world PMIs are either below, or very close to the 50 no change mark, so the showing in the US is really not bad at all.

The weighted composite PMI was consistent with the US economy expanding by between 2.0 and 2.5 per cent in Q3, compared to 1.3 per cent expansion in Q2.

Then on Friday came the latest jobs report. This time it was the statisticians that came to the aid of the President.

The figures for September were alright. US non-farm employment rose by 114,000 in September. This was pretty much bang on market expectations. But the statisticians also upwardly revised data for July and August by no less than 86,000. Put all this together and it means that US unemployment fell from a stated 8.1 per cent in September to 7.8 per cent in August — and a three and a half year low.

Okay, one can be cynical and say yes but a lot of the jobs are coming from a rise in part-time workers. The consensus is that Q4 won’t be so good.

But…in the week before last, US consumers appeared to get a lot more confident. In fact, in September the US consumer confidence index produced by the Conference Board rose to the highest level since February, the second highest level since February 2011, and the third highest level before the finance crisis of 2008.

And finally, according to the Case Shiller index, US house prices rose by 0.2 per cent in July, by 1.2 per cent on a year ago, and by 4 per cent since last year’s low point

All in all then, a pretty good set of data. The US has its problems, not least the way in which US society is becoming so polarised between the rich and the poor. But at least Q3 seems to have been pretty good.

Contrast that news with the latest data on the French economy. Markit’s composite PMI tracking French manufacturing and services fell from 48 in August — which was worryingly low — to an awful 43.2, a 42 month low, and consistent with a very sharp contraction.

What with Mr Hollande’s 75 per cent marginal tax for those earning more than one million euros threatening to lead to an exodus of business leaders, and stop start-ups before they start, France has problems.

The growing gap between the rich and poor, and indeed the very rich and middle classes is a problem, but is a 75 per cent tax rate really the answer? In a globalised world, where some countries charge much lower tax rates, such a policy seems a tad risky. Maybe, however, by introducing such an extreme tax, France is encouraging other countries to implement more modest taxes. Maybe France is sacrificing itself on the altar of the common good. Or maybe France’s problem is that it just doesn’t have any words for laissez faire.


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