US economy transitions to the New Normal

Economic growth

SHARE THIS STORY

US GDP Apr13.pngThe above chart from the Wall Street Journal highlights the major change that has already taken place in the US economy as it transitions to the New Normal. The black line shows the 10-year average growth for US GDP since 1980, which has halved since 2008 because:

• GDP grew at an average of 3.1% from 1983 – 2007 in the Boomer-led SuperCycle
• Even more importantly, there were only 16 months of downturn during this period
• And these were immediately followed by a recovery based on pent-up demand
• But since 2008, however, growth has only averaged 1%

This change is even more startling given the $tns of stimulus/liquidity provided by the Federal Reserve and the government. They thought this would turbo-charge a quick recovery but failed to recognise that it is demand, not liquidity, that drives economies. 26% of the US population are now >55 years, and 10k/day reach retirement age of 65 years. Older people mainly need only replacement products, and thus the concept of ‘pent-up demand’ is no longer relevant.

Equally, it is very hard for the US economy to grow if China is rebalancing and Europe close to recession. China’s real Q1 GDP growth was probably similar to the 4% growth in electricity consumption and in oil demand. The reported figure of 7.7% is simply a target level for guidance to local governments, as premier Li has emphasised in the past.

The key question for the US is, of course, what happens next? The detail of the Q1 GDP report confirmed that consumers have been busy replacing older cars and appliances, and so future growth in this crucial area will probably now plateau. Worryingly, companies seem to have been over-optimistic on demand, as inventories rose quite sharply. And there were already signs that corporate capital investment is already starting to decline.

Certainly the evidence from chemical markets, and Q1 corporate results, gives little sign that a quick return to SuperCycle years can be expected. Instead, the cost of paying down the debt caused by the stimulus efforts will be a burden for decades to come.

Benchmark price movements since the IeC Downturn Monitor’s April 2011 launch, and latest ICIS pricing comments are below:
Naphtha Europe, black, down 26%. “Asian petchem market is already set to receive over 0.5MT of deep-sea naphtha supply in June
PTA China, down 23%. “Subdued buying activity in the wake of weak China economic data and volatile commodity markets”
Brent crude oil, down 18%
HDPE USA export, down 18%. “Traders saying prices are expected to fall further”
Benzene NWE, up 5%. “Dynamic of the market started to reverse in midweek”
S&P 500 stock market index, purple, up 16%

PREVIOUS POST

Affordability now the key to future success

27/04/2013

The ‘middle ground’ was the place to be to capture maximum profits d...

Learn more
NEXT POST

High frequency trading causes another mini-crash

30/04/2013

Do any blog readers routinely trade on the basis of Twitter comments? Or more sp...

Learn more
More posts
Merkel warns of need to prepare for No Deal Brexit
05/07/2020

Most people missed the fact that last Tuesday was the last possible date to delay the UK’s exi...

Read
World moves from Denial to Anger, as the Paradigm of Loss moves forward
07/06/2020

I have been warning about the Covid-19 risk since early February, and in April suggested here that: ...

Read
The New Normal for global industry
31/05/2020

The global chemical industry is the third largest sector in the world behind agriculture and energy,...

Read
Debt, deflation, demographics and Brexit set to challenge London house prices
17/05/2020

London property websites haven’t used the word “reduced” for many years. But it...

Read
The bill for two decades of doomed stimulus measures is due
03/05/2020

The Financial Times kindly made my letter on the risks now associated with central bank stimulus the...

Read
Local supply chains replace global trade as world starts to “do more with less”
26/04/2020

Something quite dramatic is happening in the global economy.  Of course, Wall Street analysts still...

Read
Financial markets enter their Convulsion phase
19/04/2020

Many companies and investors are still comparing today’s downturn to the 9-month hiccups seen afte...

Read
World risks moving from Denial into Anger as the Paradigm of Loss moves forward
12/04/2020

The head of the IMF has warned again on the likely scale of the economic depression ahead: “Gl...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more
X

Uncover exclusive industry upates from ICIS

Interested to uncover more articles related to this topic? Explore additional news, insights and intelligence, tailored to the markets you are interested in by accessing exclusive content from ICIS.com

DISCOVER MORE