03 September 2015

Bad News Drives out Good (Why the Trade Deficit Improved While You Were Busy Panicking About China)

Last month, China's economy appeared to slow. The stock market promptly lost about $2 trillion in value in a few panicked days.  What happens in China matters, but there are about 6 billion other people on the planet and there was some good news from Europe that was drowned out by all the shouting about the apocalypse.

Unemployment in Europe fell to its lowest level in about 3 to 4 years. Europe's economy is warming up. This is good news to offset the bad news from China.

Today the Commerce Department reported a drop in the trade deficit of 7.3% for July. One reason cited? An increase in exports to the European Union. As more Europeans get jobs, they buy more American goods.

It is odd that Europe's good news was so thoroughly drowned out by China's bad news.

China's is the second biggest economy in the world, at $9 trillion. Well, second if you rank by countries. The European Union's economy is actually twice as big, at $18 trillion. (Even though its population is about half as large, at only 500 million.)  If Europe begins to grow at healthy rates it will be more than enough to offset the fact that China's growth levels are dropping from extraordinary to just great. Today's drop in our trade deficit is just one reminder of that.

There is always bad news somewhere and when it comes to media coverage, the bad news will drive out the good. Pessimists aren't much fun but they do hold our attention. Bad news gets thrown in your face. Good news you have to go look for. Europe's change from no recovery to slow recovery isn't particularly exciting news but it should be.

No comments: