THE US ECONOMY - STRONGER THAN MOST OTHERS AND SET FOR ANOTHER BOOST
Mark Lister, 11 March 2021
The US economy is in pretty good shape at the moment. A number of indicators we've seen over the last fortnight confirm this, while the latest COVID-19 support package is set to provide a hefty boost to activity levels.
The monthly Institute of Supply Management (ISM) index is a monthly survey that reflects the strength of the manufacturing sector, and it’s a good indicator of the economy overall.
It was very strong in February, rising from to 60.8, ahead of expectations and well above the breakeven-level of 50.
That was the strongest print for the ISM since May 2004, and before that we need to go all the way back to December 1987 to find a higher reading.
The February jobs report was also better than expected, with 379,000 jobs created, above market forecasts. That saw the US unemployment rate fall to 6.2 per cent, the lowest since March 2020.
That's still well below the 50-year low of 3.5 per cent from the beginning of last year, but it's a whole lot better than the 14.8 per cent that prevailed back in April.
Having said that, main street America is still facing challenges, and many parts of the economy require ongoing support.
The National Federation of Independent Business released its monthly survey last week. Its measure of small business optimism is improving, having risen to 95.8 in February.
However, that’s still some way down from the average of almost 105 that prevailed for the three years leading up to March last year.
Despite the mixed picture in places, US economic growth in the March quarter should be impressive when we see the first estimate of GDP released at the end of April.
The next quarter could also look buoyant, with increased stimulus, a gradual reopening of the economy and the vaccine programme all set to ramp up over the coming weeks.
On the immediate horizon we have the next round of stimulus looming. Senate Democrats passed the long-awaited US$1.9 trillion COVID-19 relief package last Saturday, and the bill went to the House of Representatives for approval this week.
It is hoped this will be soon sent to President Joe Biden for his signature, ahead of the March 14 deadline to renew existing unemployment aid programs.
The new package includes direct payments of up to $1,400 for most Americans, and a $300 per week increase to jobless benefits.
The latter is smaller than the $400 per week that was originally planned, although these will now last slightly longer, running until early September.
The US is also doing well getting COVID-19 under control. Almost 30 per cent of the population has been vaccinated already, new cases of the virus have fallen 80 per cent compared with January levels, and the hospitalisation rate is at its lowest since October.
This should all ensure a steady stream of positive developments on the reopening front. As an example, during the last few days Texas (which is the second most populous US state) has allowed businesses to reopen at full capacity.
America remains the biggest economy in the world, and it is home to some of the world’s largest companies. It is also our third biggest export market (behind China and Australia), taking a little more than 11 per cent of New Zealand’s merchandise.
For the world to recover from the events of last year, it needs to be led by a strong US, so let’s hope this good news continues in the months ahead.