Monday, 5 December 2011

Economies in US and euro area diverging

The past week saw more data showing that the United States and the euro area economies are on divergent paths as far as their growth is concerned.

In the US, data on Friday showed that employment continued to recover in November. The economy gained 120,000 jobs and the unemployment rate fell to 8.6 percent from 9.0 percent in October. The November unemployment rate was the lowest since March 2009.

In contrast, data from the euro area last week showed that the unemployment rate there rose to 10.3 percent in October from 10.2 percent in September. The October unemployment rate was the highest since June 1998.

US manufacturing has also held up relatively well. The Institute for Supply Management's manufacturing PMI rose to 52.7 in November from 50.8 in October.

In contrast, Markit's manufacturing PMI for the euro area fell to 46.4 in November from 47.1 in October, falling further below the 50.0 mark that indicates contraction. The November PMI was the lowest since July 2009.

Confidence is also returning in the US. The Conference Board's consumer confidence index rebounded sharply to 56.0 in November after having plunged to 40.9 in October.

In the euro area, however, confidence has continued to deteriorate. The European Commission's consumer confidence indicator fell to minus 20.4 in November from minus 19.9 in October while the broader economic sentiment indicator fell to 93.7 from 94.8.

Based on data available thus far, the US economy looks likely to maintain growth in the fourth quarter.

For the eurozone economy, however, it looks like the fourth quarter will mark the start of a recession.

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