Issues and events that shape Long Island's economic and legislative landscape.

Sunday, September 25, 2016

LIA Monthly Economic Report - U.S. economy shows mixed signals

The U.S. economy continues to show mixed signals. U.S. GDP grew at an annual rate of only 1.9% in the first quarter, slower than the 2.2% rate first reported. Job growth has also slowed. With the European debt crisis worsening and much of the Continent in recession, U.S. exports have suffered. The only bright spots are the significant drop in oil prices and the recovering housing sector.

The global economic slowdown is impacting the U.S. economy. Euro-zone countries purchase a significant proportion of U.S. exports and U.S. financial institutions are closely linked with their European counterparts. China's economy, although robust by Western standards, is also slowing. As a result, U.S. export growth has slowed. In the first four months of this year, exports to the 27-member European Union grew by only 3.5% as compared with growth of 15.3% a year earlier. Merchandise exports to China increased by only 4.3% as compared with a growth rate of 22.4% for the first four months of 2011. Slower export growth has hurt U.S. manufacturers. According to the Federal Reserve, industrial production fell in May for the second time in three months.

While the global economic slowdown has hurt U.S. exports, it has also made America a "safe haven" for foreign direct investment, which includes foreign acquisitions of U.S. businesses and real estate but not purchases of Treasury bonds and other U.S. securities. Last year, foreign direct investment in the U.S. totaled $234 billion, which represents a 14% increase over 2010 levels. Two-thirds of this money came from Europe. The influx of foreign direct investment has also propped up the value of the dollar, making U.S. exports even less competitive abroad.

To view the full report click here.