Why Markets Care More About China than the U.S.

It’s been well over a century since there was a question about where the most powerful and innovative businesses were located.  Over this time frame the United States has been the leader in military might, has been innovative and productive, and has had the most influential financial system.

That is changing, however.  And it’s changing quickly.

Here are three graphics that show why markets increasingly view the American economy as a “has been,” heading in another direction – China.

Global Employment Growth – 2007 to Current

Perhaps surprisingly, the behemoth of the group is not business in the U.S. or the E.U., but China.  The dominance amounts to the location of about half of all global jobs created since 2009 (sample is 65 countries; see table that follows).  Overall, of the approximately 102 million in net new jobs, 53 million have been created by individuals and businesses in China.

Far behind in second place are businesses and individuals in Indonesia at approximately 14 million.  Rounding out the top five are Turkey at 7 million, Philippines at 4 million, and the United States at 400K fewer than the Phillippines.

In a somewhat sad note, the other end of the net job creation scale is heavily comprised of E.U. member countries, including Spain at -2 million net new jobs, Greece at -1 million, Italy at -800K, Portugal at -600K, and Romania at -400K.

Growth in Employment since January 2009

IB-Global Employment Growth

 

Productivity

The second graphic shows the relatively mediocre performance of the American economy based on productivity.

On top, in terms of productivity, are workers in China, having experienced productivity growth of nearly 38 percent since 2009.  Next on the list are workers in Indonesia at 15 percent growth.  The remainder of the top five productively growing economies include Russia at 11 percent, South Korea at 9 percent, and Spain at 8 percent.

On the other end are the U.K. at 1.6 percent, Italy at 1.9 percent, and Switzerland at 2 percent.

The lackluster American experience is clearly shown with productivity in the U.S. smack dab in the middle at 6 percent.

Productivity Gains since 2009

Employee Earnings Growth

The third figure supporting the view that markets are increasingly giving American economic conditions a ho-hum view is employee earnings growth as measured by growth in unit labor costs. As a note of explanation, unit labor costs represent the percentage of output going to workers.  When worker pay is going up as a percentage of output, employee pay is usually going up. Unit labor costs have grown the fastest in China, up 65 percent since 2009.  Other high-growth earners include workers in Indonesia (up 47 percent), Australia (up 13 percent), South Korea (up 7 percent), and Canada (up 7 percent). On the south end, as with employment and productivity, business conditions in E.U. member countries look terrible.  On the bottom is Spain at -9 percent, Japan at -5 percent, and Switzerland at 1 percent.

Unit Labor Costs since 2009

Overall, although the U.S. still has a very influential military and large economy, the recent growth trends have led markets to increasingly abandon the U.S. as a global leader for growth, instead switching attention to such countries as China and India.

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