OPINION:
Fears that troubles in China will somehow pull the United States into another recession are overdone. It’s time for Americans to embrace optimism.
The Middle Kingdom’s economic miracle is losing steam, slowing Chinese imports and driving down global prices for oil, metals and other commodities.
That hurts U.S. resources industries, but it is important to recognize that China’s notorious trade barriers — which require, for example, General Motors to assemble Buicks in China rather than exporting from Michigan — also means the U.S. economy is not terribly dependent on making products to sell in China.
U.S. oil producers are becoming more efficient and cutting costs — especially shale oil producers. Overall rig counts may be down, but somehow those scrappy small producers manage to keep on pumping — oil produced in the lower 48 states has so far remained fairly steady this year. Even if U.S. production dips, the overall benefit of consumers paying $2.50 a gallon for gas instead of nearly $4 is huge — because the United States still is a net importer of petroleum products.
Americans are spending again. Household balance sheets are in their best shape since before the financial crisis, and consumer spending, which accounts for nearly 70 percent of the economy, grew at an estimated 3.5 percent annually in the second and third quarters.
Deflation is the not the problem many fear. Remove energy prices and the Consumer Price Index (CPI) is up nearly 1.9 percent over the last year. That’s just about the Federal Reserve’s target for inflation that is not too high to distort business decisions and not so low as to discourage consumer purchases in anticipation of falling prices in the future.
Oil prices can hardly be expected to fall much further, but should those increase even $10 a barrel in 2016, the CPI would advance at a significantly higher rate than 2 percent.
To boost growth and inflation, central bankers in China, Europe and Japan have lowered the interest rates their banks pay for money and are flooding markets with liquidity through bond purchases — aka quantitative easing.
Those policies strengthen the dollar against foreign currencies, make imports cheaper on U.S. store shelves and exporting tougher for U.S. companies, but those negative forces on U.S. growth don’t nearly match the overall positive impact of the recovery in consumer spending.
Other good things are happening. The troubles of aging elephants like IBM and Hewlett-Packard notwithstanding, Amazon (in particular, Cloud giant Amazon Web Services), Microsoft, Google and other younger technology companies are innovating and accomplishing growth with transformational consequences for what we make, how we work and where we live on a par with building the transcontinental railroads.
With China’s recent collapse, the “Asia Century” becomes hyperbole. The revolutions in technology that define the Cloud, 3D printers and other advanced manufacturing, electric cars and the like are increasingly happening in the United States.
Pundits have become alarmed that recent stock market turmoil is the precursor of another recession. More likely, it reflects investor confusion about the shift of growth from China and developing countries back to the United States, the United Kingdom and Germany, and innovation increasingly shifting to younger technology companies whose future values are difficult to assess.
Later this week, the Commerce Department will report economic growth in the third quarter slowed from 3.9 percent in the second quarter, but that will largely owe to a one-off adjustment in inventory investment. Underlying data for consumer demand will indicate more robust growth for the fourth quarter and 2016.
Of course, we could do better. Less government regulation and a simpler tax system would help, but America is not headed for a recession.
More importantly, the pace of innovation is so strong that historians may well look back on this decade as the dawn of the Second American Century.
• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.
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