On Air Now

Upcoming Shows

Program Schedule »

Listen

Listen Live Now » 1330 AM Sheboygan, WI

Weather

Current Conditions(Sheboygan,WI 53081)

More Weather »
68° Feels Like: 68°
Wind: NE 7 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Today

AM Clouds/PM Sun 74°

Tonight

Mostly Cloudy 65°

Tomorrow

AM Clouds/PM Sun 73°

Fork in the road as U.S. outstrips Europe

By Alan Wheatley, Global Economics Correspondent

LONDON (Reuters) - Slowly but surely, the global economy is witnessing a modest parting of the ways as the United States pulls ahead of a euro zone still shell-shocked by its debt and banking crisis.

To be sure, a slew of reports this week will show neither America nor Europe in great shape.

But while advance October surveys of purchasing managers are likely to confirm the euro zone stuck in recession, U.S. economic growth probably picked up to a 1.8 percent rate in the third quarter from 1.3 percent between April and June, according to a Reuters poll.

The euro zone polls were due on Wednesday with the U.S. gross domestic product release scheduled for Friday.

"My impression is that there is more of a divergence re-emerging between the U.S. and Europe," said Andrew Kenningham with Capital Economics, a London consultancy.

Retail sales, auto purchases and the housing market have all perked up in the United States as the Federal Reserve's ultra-loose monetary policy shows signs of gaining traction.

"If there is one area where there is a possibility of an upside surprise, it is the U.S. economy," said John Lipsky, a former deputy managing director of the International Monetary Fund.

BRIGHTER IN THE LONG TERM

Politicians in Washington are likely to avert a plunge off the "fiscal cliff" at year's end, while U.S. corporations remain in quite good shape, judging by their productivity, profitability and leverage, Lipsky said.

"The energy outlook for the U.S. remains differentially favorable relative to almost any other advanced economy," he added. "And finally, do not discount the revolution in U.S. manufacturing, especially in the use of new technologies such as 3D printing."

Nonetheless, short-term growth is unlikely to generate enough jobs to impress the Federal Reserve, which is aggressively buying bonds - a process known as quantitative easing (QE) - to keep interest rates lower for longer to boost investment and employment.

As the central bank opted for a third round of QE asset purchases six weeks ago, economists expected little change in the policy-setting Federal Open Market Committee's statement setting out its stance after a two-day meeting on Thursday.

Deutsche Bank said the U.S. economy would have to create about 160,000 jobs per month to be consistent with the Fed's current guidance that it could begin to raise short-term interest rates from mid-2015.

"But if the numbers are coming in well below that rate for a number of months (100,000 or less), look for the Committee to extend the mid-2015 date and possibly step up its QE purchases, and expect just the opposite if they are coming in well above that rate (200,000 or more)," it said in a report.

ASIAN EXPORTS

The diverging fortunes of Europe and the Unites States are reflected in Asia's export data.

Chinese shipments to the United States were up 5.5 percent in September year-on-year; those to the European Union were down 10.7 percent.

Taiwan's September export orders from the Unites States turned positive last month, up 9.2 percent from a year earlier, while those from Europe were down 5.6 percent.

Firming external demand was one reason Goldman Sachs expected a modest improvement in a survey of Chinese purchasing managers, due on Wednesday.

On the same day, alongside a similar poll of euro zone buyers, a monthly survey by the Munich-based IFO Institute will indicate whether business confidence has been rising after the European Central Bank's promise to buy the bonds of troubled euro members.

Reuters polls found forecasts for slight rises in the purchasing managers' indexes for manufacturing and services, with both measures likely to remain well below the 50 threshold demarcating expansion from contraction.

IFO's business climate and expectations indexes should also creep higher.

Bond yields in Italy and Spain have tumbled since the ECB's pledge, which is conditional on the implementation of agreed reforms - as ECB President Mario Draghi will presumably repeat to the Bundestag, Germany's lower house of parliament, on Wednesday.

Capital Economics said the euro zone was enjoying no more than a lull before the resumption of a storm that has now raged for more than two years. "We suspect it will be a short-lived respite, not necessarily weeks. It might be months, rather than a real turning point," Kenningham said.

HSBC's chief European economist, Janet Henry, agreed that while the road to a resolution of the euro crisis would be long and winding, the ECB had, by reducing bond risk premiums and triggering a rally in equity prices, eased financial conditions in a way that should help the economy.

"This tends to lead GDP real growth and it is pointing to growth turning positive relatively soon," she said.

Things should also look rosier for Britain this week, if only for calendar reasons.

After three quarters of recession, third-quarter GDP figures on Thursday will likely show 0.6 percent growth, bouncing back from a 0.4 percent contraction in the second quarter which contained four-day holiday weekends for both Easter and Queen Elizabeth's Diamond Jubilee celebrations.

(Editing by Dan Lalor)

Comments