The locomotive is gearing up along the track

Posted Tuesday, August 30, 2016 by
Skerdian Meta • 2 min read

Before the 2008 financial crisis, the US consumer used to be the engine which pushed the US economy forward. It also pulled the other economies of the globe along with it. We all know how much the US households consume. So, they provided great domestic demand as well as global demand for imports. That´s why officials of the emerging economies such as Brasil, India, Turkey, China, Indonesia etc started begging and cursing the FED when the FED was about to raise the interest rates last December.  

Yes, the US consumer is a beast. But, in the last decade since the global financial crisis, this beast has been in lethargic sleep. In the first 2-3 years after the crisis, the US consumer held back because people were losing their jobs, which made the consumer scared. After that, the consumer wasn´t scared anymore but it remained cautious because the future was very uncertain.

Now, particularly in the last few months, the US consumer is growing very confident and the consumer indicator crossing over the 100 level is a strong sign of this. The unemployment has fallen below the 5% natural level and the wages are starting to grow. Looks like the locomotive that is the US consumer is changing up the gears, but the question is whether the consumer alone is enough to fully revive the US economy. Another unknown in this equation is the share of the US consumer in the global economy about a decade later.

In 2008 China was still the fourth or fifth economy of the world. Besides that, the share of the other emerging economies was smaller. The global share of the US economy has declined nearly a decade later and so has the share of the US consumer. So, even if this locomotive of the global economy runs at full speed, will it have enough horse power to drag all the wagons along with it like it once did? Japan is in a hole, Eurozone can´t get it together and the UK just dug its own hole with Brexit. maybe China will step up together with other emerging markets.   

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