The US vs. Europe

From the website Pragmatic Capitalist.   {My highlights.}

This Great Graphic was created by an old friend Rab Jafri. Drawing on Bloomberg and Eurostate data, the chart depicts the performance of US and euro area industrial output over the past several years.

It shows that the US collapse in industrial output was not as steep as in the euro area, but the recovery began a bit later. Through Q1 2011, there was an apparent synchronized recovery. However, since than the divergence has become increasingly evident. The disappointing flash euro zone PMI, in contrast to greater than expected gain in the Markit preliminary US PMI,  warns that the divergence is widening further.

Some observers may argue that the out performance of the US is a function of the reluctance of the US to take its foot of the fiscal accelerator. This, we argue, is misleading. First, for the past few years, more often than not the US government sector was a net drag on GDP, with few exceptions. As fast as Washington may have arguably been spending, the states and local governments were cutting back even faster.

Second, the combination of the fiscal cliff and sequester resolutions while several European countries are given more time to reach deficit targets, means that US fiscal consolidation will be greater than the euro zone’s this year.

Third, the US may have gone for a more pro-growth strategy at the cost of more gradual fiscal consolidation and is saddled with a large deficit and mounting debt. The euro area went with fiscal consolidation and has poor growth to show for it and large deficits and debt. If it were a poker game, wouldn’t you prefer US cards over the euro zone, even if it is not a royal straight flush.

Link:  {Pragmatic Capitalist.com}: US-Euro Area Industrial Production Divergence.