Can an $18 trillion dollar economy keep growing at a fairly steady rate, despite a sudden slump in the industrial sector (manufacturing, mining and utilities)?
Here is some recent data for industrial production:
Industrial production grew fairly consistently up to December 2014, but then suddenly began falling slowly. Now let’s see what happened to real GDP:
Somehow RGDP has maintained a roughly 2% growth rate since 2010, despite a sudden slump in the industrial sector. Is that even possible? Yes, services picked up the slack.
Next question: Can two $18 trillion dollar economies, each of which have the third largest land mass on Earth, continue growing despite a slump in the industrial sector?
Of course the second $18 trillion economy (PPP) is China. And in China, industrial growth has fallen from the 9% to 10% range in 2013 to about 6% in 2015:
And yet China’s RGDP growth has only slowed slightly, from roughly 7.5% to 8.0% in 2013, to about 7% today:
However there is one very important difference between the two cases. Lots of people believe the Chinese GDP data can’t possibly be correct, given the big reduction in the growth rate of industrial production. But I don’t recall anyone questioning the US figures, despite an even larger slowdown in the growth rate of industrial production.
PS. After I wrote this post I noticed that Tyler Cowen is predicting Chinese growth will soon fall to zero. I think growth will be closer to 6%, and don’t see how his reasons (excessive debt, etc.) would not have applied equally well in other years. Indeed he doesn’t mention what I think is the best argument for a Chinese recession, an overvalued exchange rate which is reducing NGDP growth. In any case, I think the safest prediction is the same one I’ve been making for over 35 years. Boom! And look at the bright side, if I’m wrong this time then my record will still be better than the Golden State Warriors. Tyler also mentions slowing Australian growth, and indeed troubles in the mining sector are affecting Australia. However it’s worth noting that Australia’s unemployment rate actually declined during 2015.
PS. How can the US and China, both the world’s largest economy (due to a dispute over PPP), also both be the world’s third largest country? Disputed territories.
