Why global woes and sinking stocks don’t mean US recession

Associated Press

WASHINGTON

Last week’s harrowing plunge in U.S. stocks – fueled by economic fears about China and plummeting oil prices – left investors anxious and alarmed. Some wondered if it signaled an approaching recession in the U.S. The answer, most analysts say, is no.

The American economy is expected to prove resilient and nimble enough to avoid serious damage, at least anytime soon. For all the economy’s challenges, the job market is strong, home sales are solid and cheaper gasoline has allowed consumers to spend more on cars, restaurants and online shopping.

The companies that make up major stock indexes are far more vulnerable than the economy itself is to distress abroad: Companies in the Standard & Poor’s 500 index derived 48 percent of their revenue from abroad in 2014, up from 43 percent in 2003.

By contrast, exports account for only about 13 percent of the nation’s gross domestic product – the broadest gauge of economic output. That’s one of the lowest such shares in the world. Exports to China equal just 1 percent of GDP.

The S&P 500 sank 2.2 percent Friday and has tumbled 8 percent since the year began, deflated by expectations of even lower oil prices ahead and fears that China’s once-explosive economy is slowing more than anyone had expected. On Friday, the Xinhua news agency reported that Chinese banks reduced loans last month from a year earlier.

It was the latest sign that China’s economy continues to decelerate — an ominous trend for U.S. companies, such as heavy-equipment maker Caterpillar, that have significant business there. (Caterpillar shares shed 2.7 percent Friday.)

The disconnect between the actual economy and the price of stocks isn’t new. From the waning days of the Great Recession into the tepid recovery that followed, stocks managed to gradually rise despite persistently high unemployment and tepid economic growth. Now, the opposite seems true.

“Main Street is better, and Wall Street is suffering,” said Jim Paulsen, chief investment strategist at Wells Capital.

The broadest gauges of the economy look fundamentally sound. GDP likely expanded 2.4 percent last year, according to JP Morgan Chase.

The job market appears particularly robust. Employers added an average of 221,000 jobs a month during 2015 and 284,000 a month from October through December.