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Senin, 28 September 2015

The world has a 'reliable buyer of last resort' — it's smaller than the US economy but bigger than China's

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ROSENBERG: The world has a 'reliable buyer of last resort' — it's smaller than the US economy but bigger than China's

2015 hasn't been a great year for China.

The dramatic slowdown in China, whose economy is technically the second largest in the world behind the US', has policymakers around the world nervous as they assess how the massive emerging market affects their local businesses.

The US economy also isn't without its problems as legislatures push the government to the brink of a shutdown.

But some of Wall Street's biggest bulls write that there's one sub-economy that deserves more attention: the US consumer.

In a recent note to clients, David Rosenberg, chief economist and strategist at Gluskin Sheff, pointed out that US consumers alone made up an "economy" that is larger than China's entire economy. And, furthermore, it has more positives than China has negatives.

As he wrote in the note:

Yes, we hear constantly about how China's share of global GDP has risen inexorably over the decades, but that obscures a huge point.

China's contribution to global producers has been in the basic material sphere as the country absorbed so much of the world's resources in its quest to build mega cities and build a world-class industrial infrastructure, but that is about it.

China, for years, racked up massive trade surpluses as these mega cities became home to low-cost export regions.

The reliable buyer of last resort, outside resources, was never China. It was and continues to be the United States.

The American consumer, if it were a country of its own, would be the largest economic base in the world. That's right — even bigger than China's entire economy.

Piggybacking on Rosenberg's analysis, Fundstrat's Tom Lee then circulated a chart that Rosenberg shared showing this. As you can see, the US consumer economy makes up 15% of the global gross domestic product, while China's entire economy makes up 13% of it. (For what it's worth, the Chinese consumer economy makes up 5%.)

Lee even goes on to suggest that the fact the US consumer economy is both large and robust suggests there could be "life after China."

"Think about the tailwinds for US consumers," Lee writes. "Jobs market is strong. Wages could rise. Housing is only early stages of recovery. Gasoline is lower. All pointing to upside surprises. In fact, one could argue there is more upside surprises to the US consumer than downside to China at the moment."

 



RBC Capital Markets chief US economist Tom Porcelli came to a similar conclusion after examining two components of GDP: net exports of goods and services and real personal consumption expenditures. He argues that when it comes to the US economy, he observed that the positive effects of the latter overshadow the negative effects of the former.

The latest data continues to confirm these calls. On Monday, personal spending rose 0.4% for the month of August, more than the expected forecast of 0.3%.

"Net, net the consumer is running red hot, and their purchases are driving the economy fast enough to outweigh any concerns we might have about the slowdown in the world economy," Chris Rupkey, chief financial economist at MUFG, wrote. "This is an economy that is not even remotely in the wake of financial crisis and recession. The recent stock market turbulence in August, those rocky seas have had no effect whatsoever on consumer spending. This economy is strong."

It's worth noting, however, that — when looking at this from the longer point of view — the robust US consumer economy could also be a red flag.

Last week at a press briefing, Mike Wilson, chief investment officer of Morgan Stanley wealth management, said consumer behavior was starting to show signs of excess as the economic recovery was reaching its later stages:

Consumers are feeling pretty good, and they are starting to spend money again, and they're starting to do dumb things. They're starting to borrow money, they're starting to maybe buy that house they shouldn't or that car they shouldn't ... And now, the clock is ticking. We're into the final part of this recovery. It could last three years, it could last five years, it could last two years, I don't know. But that excess sort of behavior is starting to happen.

Either way, China's economy is not the only one worth paying attention to. Read »

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