US enters sweet spot as Chinese economy slows

Written by Bloomberg | Updated: Apr 4 2012, 08:03am hrs
The US once again may be emerging as a main engine for global growthand at an opportune time, as Europe slides into recession and Chinas economy decelerates.

An improving job market, rising stock prices and easier credit are combining to lift US consumer confidence and spending, with optimism measured by the Bloomberg Comfort Index near a four-year high. Personal-consumption expenditures increased by the most in seven months in February, rising 0.8%, the commerce department said last week.

Were entering a sweet spot for the economy, said Allen Sinai, president of Decision Economics in New York. Were in a self-reinforcing cycle, where faster employment growth leads to higher household income and increased consumer spending.

International companies, including Milan-based Gianni Versace, already are benefiting. Revenue for the Italian designer will rise at a really strong double-digit pace this year in the US, compared with a significant single-digit amount in Europe, according to chief executive officer Gian Giacomo Ferraris. America is doing fantastic, he said last month. The blossoming of the US expansion comes amid a slowdown in China, until now the pacesetter for the world. While a purchasing-managers index rose to a one-year high in March, according to Chinas logistics federation and the National Bureau of Statistics, analysts said the gain was seasonal and pointed to a separate index produced by HSBC Holdings and Markit Economics that showed manufacturing contracted and export orders fell last month.

Premier Wen Jiabao cut this years growth target to 7.5% last month from an 8% goal in place since 2005 as officials seek to shift the economy toward more consumption. Thats down from last years 9.2% expansion.

For China and some other emerging economies, the policy goal is to gradually bring inflation down to help achieve a so-called soft landing, Chinese central bank governor Zhou Xiaochuan said on Tuesday. The 17-nation euro-area, meantime, is flirting with recession after gross domestic product fell 0.3% in the fourth quarter, the first contraction since 2009. Manufacturing contracted in March, and unemployment rose to 10.8% in February, the highest in more than 14 years, reports showed on Monday. All this means the consumer rebound in the US is a big plus for Europe and Asia, as companies in the two regions will see increased demand for their exports, said Joseph Carson, director of global economic research at AllianceBernstein in New York. The US trade deficit widened 4.3% in January to $52.6 billion, the largest since October 2008, as imports rose to a record high. US consumer spending was the fundamental reason department-store sales for Prada increased in the year ended January 31.

CEOs take-home pay climbs

The take-home pay of US chief executives grew at least 10% in 2011, propelled largely by a stock market rally, according to consultants estimates. The trend may carry over into 2012 if the market stays strong, with CEOs reaping the gains from low-priced stock options and restricted stock which they received in the 2007-09 crisis.