China pulls the cart, but US economy holds up

A true roller coaster. Those are the presidential elections in the United States. The second lockdown seems to cause less economic damage. China is leading the economic cart on the global stage, but the US economy is holding up remarkably well. Despite the third wave there.

The American elections certainly do not deserve the beauty prize, it is all fascinating. In a previous commentary on my own website, I wrote prior to the election that Joe Biden was going to win fairly easily. I gave 11 reasons for that. My belief was mainly based on that number. Even if some of those reasons turned out to be false, there was still enough left to make it plausible that the win belonged to Biden.

On the evening of and during the first night after the elections, the results certainly did not indicate this. In fact, it looked like Trump was going to be re-elected. I thought that was such a let down for my own prediction that I wrote a new piece, in which I went through the dust. I had seen it all wrong. Soon it was raining emails from readers that I shouldn't worry, that there was no need to go through the dust and that it won't be over until the last vote has been counted.

Now the odds have turned. At the time of writing, nothing is set yet, but Biden has a lead in Arizona and Nevada and that would be enough to help him get the 270 electoral votes. He can even win Georgia and Pennsylvania and that would give him well over 300 electoral votes. Then there would still be a fairly large victory and I can conclude: 'I told you so…'. But I would find that arrogant.

When I look at the 11 reasons I gave for my prediction, it's clear that a high turnout and the large number of 'post votes' seem to have put a decisive spin. If Biden is declared the winner by the media within a few hours or a few days, it will still take more than a month before it is officially confirmed by the 'electoral college'. In the meantime, Trump is going to pull out all the stops to oppose the outcome. That can cause a lot of hectic, hopefully without violence.

Second European lockdown
For several weeks now, the divergence of the economic climate in Europe on the one hand and other parts of the world on the other has perhaps been the main theme of my comments. That won't change for the time being. The second wave of corona and tightened restrictions on public life are already clearly impacting activity and mood in our part of the world. In advance I would say that the damage remains relatively limited. Certainly, some of the companies that were already in a precarious situation will collapse. That is unfortunately unavoidable.

However, there are various reasons why the economic damage will be less than in the spring. Firstly, the lockdown is now less strict. Secondly, many companies have already adapted their business operations and are better able to respond to the new situation. And thirdly, not the whole world is in lockdown right now. Business in Asia is growing considerably. That offers our export opportunities. Moreover, there will be no problems with supplies from Asia.

Services sector hit harder
The latest figures on business confidence may provide a first indication. The Eurozone manufacturing Markit PMI (Purchasing Managers Index) improved in October to reach 54,9, a good level and a marked increase from September, when the index came in at 53,7. But confidence in the services sector had already waned in October: 46,9 against 48,0 in September. In the spring, too, the services sector fell earlier and faster than industry. That makes sense because the lockdown measures affect the service sector more than the industry.

The leading German industry recorded decent figures in September. Order volume increased by 0,5% in September compared to August, but was still 1,9% lower than September 2019. Keep in mind that the year-on-year decline in April was still about 37%. Industrial production rose 1,6% month-on-month in September, down 7,2% from a year earlier and was down by about -24% in April.

In our own country, the economy has held up somewhat better this year than in most other countries in Europe. In October, however, business confidence fell, according to the NEVI: 50,5 against 52,5 in September. As a result, this indicator was just above 50, a sign that there is still growth, but it is not much.

China pulls the cart
There are many ways to show how much Asia is at the forefront of the cyclical recovery, led of course by China. The various indicators relating to business confidence provide a clear picture. For those who distrust the official Chinese figures, it may be interesting to look at what is happening with ocean shipping. RWI/ISL simply count containers that are processed in ports. The following chart shows that the recovery in North-West Europe is clearly lagging behind the world as a whole.

And the following chart clearly shows how much China is ahead of the rest of the world.

It is well known that aviation is doom and gloom. Figures from Flightradar24.com show that there has been a recovery from the bottom in April, but that recovery has been stalling for some time. Globally, the number of commercial flights is currently about 40% lower than a year ago. But in Europe it is about 50%. This also shows that Europe is lagging behind.

US is holding up remarkably well in economic terms
Although the US is also dealing with rising numbers of corona infections, the economy in the US seems to be holding up better than in Europe. Especially in industry things are going well and entrepreneurs are optimistic. The ISM industrial business confidence index rose sharply in October to 59,3 (September 55,4), its highest level in more than two years. The development of the order position in particular appealed to entrepreneurs. That order position is usually seen as one of the most important elements of the index, with some predictive value.

The decline in the unemployment rate in the US continued strongly in October: 6,9% from 7,9% in September and a peak of 14,7% in April. On balance, 638.000 jobs were added. That was slightly less than September's 672.000. But it should be noted that 147.000 jobs have disappeared as work for the '2020 census' is coming to an end. In the public sector, 159,000 jobs in education at the local and state levels also disappeared.

On balance, the private sector added 906.000 jobs, slightly more than in September. I think these are positive numbers, but make two caveats. First, the unemployment rate is still twice as high as it was before the pandemic. And secondly, the number of people who are long-term unemployed, ie for more than six months, increased by 1,2 million. Experience shows that the chance of finding a job decreases rapidly as the period of unemployment increases. So this is where a problem starts to arise.

The US central bank, the Fed, left monetary policy unchanged this week. She had already indicated that she would keep interest rates at the current extremely low level (0-0,25%). The rising number of long-term unemployed will certainly not change this. The experience of recent years has shown that the underprivileged are only given opportunities when unemployment rates are very low.

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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