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The enormous divergence between Covid-19 infections in the West versus Asia has produced widely varied economic performance.
The share of the US population that tests positive for the virus each day rose five-fold since mid-September, while the infection rate in Asia declined from already minimal levels.
The US dollar hit a new low in New York’s late morning after Federal Reserve Chairman Jerome Powell warned that “the rise in new Covid-19 cases, both here and abroad, is concerning and could prove challenging in the next few months.”
In remarks to the Senate Banking Committee, Powell warned that “significant challenges and uncertainties remain” about the rollout of vaccines.
With new confirmed Covid-19 cases averaging more than 160,000 per day and new deaths at more than 1,500 per day during the past week, the US is showing signs of economic slowdown.
- Consumer spending with J.P. Morgan Chase credit cards fell to 19% below year-earlier levels on “Black Friday,” the kickoff of the Christmas shopping season, the bank reported.
- The Conference Board’s consumer expectations index fell to 89.5, close to the year’s low, from a recent high of 103.5 in September, as supplemental unemployment benefits came to an end. The comparable University of Michigan Index fell from 79.2 in October to 70.5 in November. Personal income fell in October by 0.7%.
- Manufacturing employment contracted in November according to the Institute for Supply Management, whose industrial jobs index fell to 48.4 in November from 53.2 in October. An index level of 50 represents no change.
- Small business employment continued to fall in November, according to the payroll processor Paychex, and the company’s index remains below the worst of the 2008-2009 recession.
In North Asia, by contrast, the Purchasing Manager Indices of manufacturing activity compiled by Markit are at decadal highs in China, South Korea and Taiwan.
The Caixin Manufacturing PMI, a broad measure that includes many smaller industries, rose to 54.9 in October, indicating the fastest rate of expansion in Chinese factory output in more than a decade.
I reported on November 17 that China’s exports had surged to an all-time record while overall world exports remain about 5% below the pre-Covid level of February 2020.
China’s industrial production index stood 7% above its year-earlier level in September, while the US and the Eurozone remained about 7% below theirs.
The growing disparity between North Asia and the rest of the world evidently stems from the success of their respective responses to the Covid pandemic.
Total US employment on private payrolls fell from 152 million in February 2020 to 130 million in April; it since has recovered to 142 million, leaving 10 million Americans out of work.
The resurgence of Covid-19 will probably reduce employment during the coming months. As Fed chairman Powell warned today, the US remains dependent on federal subsidies to maintain income and spending, which means running extremely high deficits for an indefinitely long period of time.
The US budget deficit now stands at 15% of GDP, a level comparable to the Second World War.
President-elect Joe Biden’s nominee for Treasury Secretary, Janet Yellen, advocates aggressive federal spending to lift the US economy out of the crisis.
As long as interest rates remain low and inflation-adjusted interest rates are negative, the government can afford to build up debt, Yellen believes.
But as a former Federal Reserve chair, she well understands that even the US has a limit where deficit spending is concerned.