Dan mentioned the resilience of U.S. markets in the face of international weakness in his Morning Word this morning. Today’s chart further highlights that point. Quite incredibly, it seems like a decade-long strong correlation has broken down between Europe and the U.S. with regards to global demand:
Thanks to Scott Barber at Reuters, we can see that since the middle of 2011, European industrial production has declined by about 5% while American industrial production has increased by about 5%. The U.S. market began decoupling from global markets at around the same time, as most markets are lower than where they were in July 2011, with the exception of the U.S. and several smaller emerging markets (like Mexico, Turkey, or the Philippines).
This chart is a simple one, but speaks volumes. The main reason it fascinates me is since it has 10 years of history, with both data sets tracking closer through 2 recessions and 2 recoveries. During that entire period, it has never had such a large divergence. It’s not a case of purely weak peripheral European demand. The magnitude of this difference also shows a shift in demand globally for U.S. products vs. European products, which is particularly surprising given that the Euro has fallen 15% lower vs. the dollar in that period.
If this divergence continues to widen over the next year, I will certainly be scratching my head. A lot about this market has had me scratching my head in the past month though.