By Stuart Burns
To quote Dickens: it was the best of times, it was the worst of times. But where Dickens' A Tale of Two Cities was talking about life in the cities of London and Paris in 1775, we could paraphrase the same sentiment to consider the relative positions of two of the largest economies in the world.
It is bizarre that one economic block, Europe, could be struggling so depressingly with economic and political challenges and another, North America, could be in reach of "escape velocity," to quote a Reuters article. Both had seemed locked into the same aftermath of the 2008/9 economic crisis; both watching from the sidelines as emerging markets bounced back and spurred global growth that would otherwise have collapsed into global recession.
But from the middle of last year, the US has shown resilience (at least) in manufacturing and (to a lesser extent) consumption, both of which Europe has not - the trend has been in opposite directions and recent data suggest it will continue to diverge this year.
Firstly. the good news. According to the FT, the Institute for Supply Management's purchasing managers' index (PMI) rose to 53.4 in March from 52.4 in February, a stronger reading than economists expected, but supported by jobs being added at a robust rate (compared to last year) of more than 200,000 per month.
Non-farm payrolls are expected to have increased by 203,000 in March, following 227,000 in February, applying downward pressure on the unemployment rate - now at 8.3 percent, a three-year low.
On the flip side, Europe's unemployment rose by 162,000 to 17.34 million in February, according to the WSJ, the highest total since the data were first compiled in January 1995. That pushed the unemployment rate to 10.8 percent of the work force, the highest rate since June 1997. Markit Economics is quoted as saying its purchasing managers' index for the manufacturing sector fell to 47.7 in March from 49.0 in February, the eighth straight month of sub-50 readings.
Across Europe, figures understandably vary. Whereas Germany and France's jobless rates held steady at 5.7 percent and 10 percent, respectively, Spain's hit 23.6 percent in February, up from 23.3 percent in January and Greece's was at 21 percent in December - since then, the authorities have been unable or unwilling to continue reporting the numbers. Unemployment among 18-25 year-olds though, is greater than 50 percent in both countries.
Meanwhile, PMI numbers are falling. Spain's fell to a three-month low of 44.5 in February and Greece recovered to 41.3 from a record-low 37.7 in January, the economy is clearly still contracting fast. In Germany, manufacturing contracted last month while in France activity dropped at the fastest level in two and a half years, according to the WSJ.
With China slowing (the latest official PMI figures conflicting with HSBC's showing a decline suggest no more than the general trend is still positive, if slower) and raw material costs rising, Europe will continue to be a drag on global recovery.
Indeed, it is those rising raw material costs that probably present the greatest challenge. Globally, input price inflation in March was the highest in eight months, with rising oil prices presenting the drag on GDP, representing a massive transfer of wealth from developed economies to oil producers.
It is possible the US' recovery over the last 12-18 months has in part been due to the historically low natural gas prices and the knock-on suppression of chemical feedstock prices. It could also be argued that the large delta between global oil prices (as displayed by the Brent crude price) and US crude prices (as displayed by West Texas Intermediate) has also benefited the US relative to Europe.
As the US gradually adds unconventional oil to its reserves of unconventional natural gas, this advantage may be enhanced, but the economies of scale, unified politics, and integrated redistributive taxation - not to mention single official language - continue to support the more dynamic nature of the US market relative to Europe's, debt crisis or not.