Tuesday, 7 February 2017

2016's economic data shows the claim of US 'strong economic recovery' was a myth

By John Ross
The publication of official US economic data for 2016, which shows only 1.6% US GDP growth for the year, and only 0.9% per capita GDP growth, clearly demonstrates two things:
  • The major global economic development in 2016 was a sharp slowing of the US economy – as is shown below;
  • Large parts of the financial media failed to analyse this reality of slow US growth and continued to repeat a myth of ‘strong US recovery.’
Two questions follow from this reality:
  • What is the real state of the main centres of the world economy – the US, the EU and China?
  • Given that accurate analysis of the state of the US economy is extremely important both in itself and for economic policy, why did sections of the financial media continue to publish inaccurate material about the US economy?
Using the method of ‘seek truth from facts’ first the data on the growth of the main global economic centres will be given and then an analysis of this.
US economy
Official data for US GDP for 2016 was recently published. This confirms clearly the sharp slowdown in the US economy during 2016.
  • US GDP growth fell from 2.6% in 2015 to only 1.6% in 2016 – that is during 2016 the US economy slowed down by almost 40% from its previous growth year’s rate.
  • US per capita GDP growth fell from 1.9% in 2015 to only 0.9% in 2016 – US per capita GDP growth therefore declined to under half of its previous year’s growth rate, and fell to less than an annual 1% which is approaching stagnation.
This data is shown in Figure 1. This trends shows clearly that the claim of ‘strong recovery’ of the US economy during 2016 was entirely a myth. In fact, the US economy was slowing sharply.
Figure 1
Comparison to other major economic centres
This data on the slowdown of the US economy is even more striking when compared to the statistics for the other two major world economic centres – China and the EU. What this data shows is that far from the US undergoing ‘strong recovery’, the US was the slowest growing of the major world economic centres in 2016
Final data for 2016 for China and the US is already published. Final data for the EU is not yet available, but it is published up the 3rd quarter of 2016, showing growth at 1.9%. The October 2016 IMF World Economic Outlook, based on the most up to date statistics, concludes this growth rate will continue until the end of the year. Given the closeness of this data to the end of the year it would be unlikely the final figure would differ greatly from this projection. Furthermore, Eurozone data already released shows growth in 2016 to be 1.8% and EU growth is normally slightly faster than Eurozone growth.
Given these trends GDP growth in 2016 would be:
  • China – 6.7%
  • EU – 1.9%
  • US – 1.6%
Therefore, not merely did the US economic decelerate sharply in 2016 but the US was the slowest growing of the major economic centres.
Figure 2
Myths of Western media
It was, of course, perfectly possible during the last year to factually follow this sharp slowing of the US economy as it was taking place. Already in August 2016 I analysed this data. At that time, major sections of the Western media were already attempting to propagate the myth of a ‘hard landing’ in China and ‘strong recovery’ in the US. Bloomberg, in particular, was publishing articles with titles such as ‘Soros Says China Hard Landing Will Deepen the Rout in Stocks’. But in fact, China’s economy slowed only marginally in 2016, from 6.9% to 6.7%, whereas as shown above, the US underwent a sharp economic slowdown.

That is the actual trends in the world economy were the exact opposite of those being claimed in Bloomberg and other sections of the Western media.

Inaccuracy of sections of the media
In addition to the inherent importance of accurately analysing trends in the global economy for economic policy making and company strategy clear conclusions can be drawn from the contradiction between the facts of economic development in the last year and analysis in the media. In particular, these facts of economic development again confirm that large parts of the Western financial media is not primarily focussed on accurate economic analysis but on spreading unjustified claims regarding the economic success of the US and unjustified claims regarding ‘economic crisis’ in China.
Two clear conclusions therefore flow from these facts regarding global economic trends in the last year.
  • First given the proven inaccuracy of the Western media the role of independent factual studies by Chinese think tanks and research organisations such as Chongyang Institute for Financial Studies is vital.
  • Second, that the publication of research by Chinese media is crucial for getting accurate data and analysis into the hands of companies and policy makers.
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This is an edited version of an article which originally appeared in Chinese in New Finance.

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