WCA November 2015

From the Americas

This has been very hard on developing economies like those in Latin America, which rely on commodity exports to China. But cheaper commodities favour the USA economy, lowering production costs for American firms and keeping more money in consumers’ pockets.  Some financial commentators worry that the recent market turmoil foreshadows something like the meltdown of 2007-09 or the Asian financial crisis of 1997-98. But these were insolvency crises, involving debt that was not going to be repaid, companies and countries going under, and economies deep in recession. The situation today is not analogous. Unlike the Asian countries that got into trouble in the late 1990s, China is a creditor-nation, not a debtor. And the emerging market economies are in much better shape than they were. Today, these countries typically have sizable dollar reserves and, instead of running big current-account deficits, mainly run surpluses with the rest of the world.  Stock-market crises can, of course, become “contagious” – dampening what John Maynard Keynes called the “animal spirits” of managers and consumers and leading to cutbacks in investment and spending. And stock prices do certainly have some impact on consumer spending. Still, market moves need to be severe and long-lasting to make a real difference. The 1987 crash saw stock values drop more than 22 per cent in a single day. Yet it had no measurable impact on corporate investment and only a short-lived effect on consumer spending. In the far less precipitous drop of 2015, wrote the New Yorker ’s Mr Surowiecki in September, Americans’ retirement accounts became a bit lighter than they were two weeks earlier. He noted further: “America’s economy looks pretty much the same.” An all-electric satellite launch is noteworthy on other counts, as well – not least its ‘unheard of’ low price-tag Bermuda-based satellite fleet operator ABS said on 10 th September that its ABS-3A satellite, the world’s first all-electric commercial telecommunications spacecraft, had reached final geostationary position and begun operations six months after its launch. Reporting in SpaceNews on the entry into service, Peter B de Selding cited as the advantage of all-electric satellites their low launch mass, allowing the purchase of less-expensive launch services; or, as here, enabling satellite operators to launch two satellites at once, depending on the rocket selected. The disadvantage, wrote Mr Selding, “is that they take months to reach geostationary position, rather than a couple of weeks Telecom

The US economy The key to grasping why a sharp decline in stock prices poses no significant threat: ‘The stock market is not the economy’ At a recent pace of about 200,000 per month, the US economy is adding jobs at a rate of 2.4 million a year. The private sector has gained more than seven million workers since the end of 2012. In August, the most recent month for which results are available, the unemployment rate stood at 5.1 per cent. That rate is at its lowest since April 2008, and broader measures of underemployment are likewise improving. The rest of the monthly report from the Bureau of Labor Statistics was similarly positive. The jobs picture brightens all the time. Despite the steady reassurance of this bellwether economic marker, going into the autumn the American media focused on a sudden and sharp decline in stock prices. To judge from such headlines as “Bloodbath in Global Markets,” many of the nation’s news sources seemed barely able to control their agitation. A notable exception is James Surowiecki, the financial page writer of the New Yorker , whose sober assessment of the market gyrations served as a timely corrective. Ignoring warnings about “a real threat to the American economy” and “a leaner era ahead,” he began with a useful reminder of a simple financial truth: the stock market is not the economy. Investor anxieties, he wrote, “have surprisingly little to do with the current state of the American economy.” (“Drop in the Bucket,” 7 th September) A virtually unaffected GDP Here, abridged and lightly edited, are the principal points made by Mr Surowiecki:  The market sell-off in the USA was driven mainly by turmoil in China, which is dealing with the deflation of a stock-market bubble and is striving to maintain economic growth. But these problems will have little impact on the USA. Total American exports to China are just $165 billion, less than one per cent of gross domestic product (GDP). Even a significant economic downturn in China would squeeze most American companies barely at all, at least short-term. Goldman Sachs estimates that a one per cent drop in China’s growth rate translates into a mere 0.06 per cent drop in the GDP of the United States. And the flow of goods imported into the USA from China is unlikely to be affected by a Chinese downturn.  Globally, China’s slowing pace of growth has certainly had spillover effects. The price of commodities (eg iron ore, copper, oil) has fallen, and the price of oil has been pushed down further by a production glut.

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Wire & Cable ASIA – November/December 2015