A Recession Wouldn’t Spread Here Like a Cold
Yesterday, a financial reporter posed a good question to me: Why haven’t the global economic woes caused a recession in this country? Or, why wouldn’t they?
It’s hard to look away from the problems in China, Greece and elsewhere. Last week, U.S. News & World Report quoted our report, Business Conditions Monthly, on the possibility of headwinds from China affecting us at home.
So why is it less than likely that problems in China, Greece, or elsewhere would send the U.S. into recession? Our senior research fellow, Bob Hughes, stated the reason in rather simple terms.
“We’re not as heavily dependent on global trade as other economies,” Hughes said.
This country’s real Gross Domestic Product is $16.3 trillion. Consumer spending makes up about 68 percent of that total. Government spending is roughly 19 percent, and fixed investment – in new factories and homes, for example — is around 16 percent. That makes up more than 100 percent – but imports outstrip exports by 3 percent.
With exports making up around 13 percent of GDP, and imports around 16 percent, trade can have an effect on our economy, but not a big one, Hughes said. Volatility from capital markets can move more quickly around the global economy, and that can have an impact as well, but ultimately our markets will trade based on our own fundamentals, Hughes said.
When other areas of the world fall into a recession, our exports slow, and “it has an impact. But by itself, it would be unlikely to cause a recession here,” Hughes said. Domestic conditions would need to deteriorate, independently of those forces, for a recession to occur here, Hughes said.
“We’re relatively insulated,” Hughes said.
