The Two Puzzles of the American Recovery

We’re hiring! The U.S. has created more than 400,000 jobs in the past year, a drive not seen across the Atlantic since the frenzy of the Internet bubble 15 years ago. The unemployment rate has fallen to 5.5 percent, half of European levels. There is a swell coming between the two sides of the Atlantic. Solidified at the end of last week by better-than-predicted employment figures in the USA, investors are encouraged to sell their euros and buy dollars. Parity is on the horizon, when last May, a euro still exchanged for nearly $1.40. The strength of employment could effectively prompt the U.S. central banking system to remove the word “patience” from its vocabulary from next week. The Federal Reserve may show its intention to raise its interest rates starting from next summer, which have been at their lowest for the past six years. New York short-term investment funds will thus yield more than those based in Paris, Frankfurt or Madrid.

This investors’ craze for the U.S. would therefore seem logical. However, before rushing off to Wall Street, it is necessary to ask two questions. First, will the future really promise to be better in America than in Europe? Growth in the U.S. picked up again almost six years ago now, something which already constitutes a very long cycle of recovery. Many of the figures published there over the last few weeks were disappointing — contrary to employment, which is an indicator that lags behind activity. In Europe, on the other hand, the “surprising” indices were the ones clearly going in the right direction. The eurozone is certainly not safe from a new incident, coming from Greece or elsewhere. However, the eurozone is fully profiting from recent movements — the re-evaluation of the dollar and depreciation of gas.

Next, will inflation really threaten the USA? At a progression rate of 2 percent per year, the hourly wage is not showing any sign of increase for the time being. The experts from the Fed recently explained that a return to an unemployment rate of between 5.2 and 5.5 percent would put pressure on prices. However, President of the Chicago Fed Charles Evans judges the critical threshold to be 5 percent. Economists maintain that things are different this time around: The mechanics of prices not being what they were, the threshold has become much lower. Others believe that nothing has changed. Behind this technical debate lies a real risk: that a too-early increase in interest rates would cause the American economy to dip once again, due to finances that have not yet recuperated and a construction industry that is hyper-sensitive to the interest rate. It is not easy to decisively turn the page on an age-old crisis.