The recovery in the U.S. growth, which will probably reach at least 2.5 percent in 2012, is often attributed to the highly expansionary monetary policy led by the Federal Reserve since 2009, with virtually zero short-term interest rates and enormous injections of liquidity that have driven down long-term interest rates to a very low level: 2 percent on 10-year Treasuries, and less than 4 percent on mortgage loans.
Very low interest rates and the abundance of liquidity have certainly favored deleveraging, reduced the number of bankruptcies and helped the government to maintain a high fiscal deficit, but they have not in reality played a central role in the U.S. economic recovery. This recovery has not come from a pick-up in lending and a rise in asset prices as had been the case in 1992 and 2002, but from very strong growth ― of more than 10 percent in volume terms ― in U.S. businesses’ productive investment and investment in capital goods.
This has mainly involved a surge in industrial investment in several sectors: automobiles, energy, refining, chemicals, plastics, etc. We can thus speak of a reindustrialization of the U.S. following a long period of deindustrialization since the early 1980s that reduced the weight of industry in gross domestic product to less than 10 percent.
We can attribute this rebuilding of the U.S. economy to the fact that industry has once again become profitable and competitive in America, thanks primarily to two developments.
On the one hand, labor costs have declined, particularly in the southeast. One hour of work in industry including social security charges costs 35 dollars in the United States as a whole compared with 45 dollars in Germany and France, but costs only 25 dollars in certain southern states with high unemployment. Labor costs in industry in the United States have become low; unit wage costs, corrected for productivity, are 20 percent lower in the U.S. than in the eurozone, which is caused by the highly competitive nature of the labor market, especially in the poor southern states.
On the other hand, there has been a sharp decline in energy costs in America due to the drop in natural gas prices caused by the appearance of shale gas, which already accounts for nearly 25 percent of total natural gas consumption and which is currently being exploited on a large scale only in the United States. One million BTUs, the standard volume unit for natural gas, currently costs $2 in the United States, $9 to $10 in Western Europe, $13 in Russia and $18 in Asia. In the U.S., that corresponds to a price for natural gas equivalent to $12 per barrel of oil, about 10 times less than normal energy prices. The advantage for industries that consume energy is considerable, since gas accounts for more than one third of the energy consumed in the United States.
We can thus see why, due to the decline in labor and energy costs, industry is being re-established in the United States. U.S. market shares in world trade have gained nearly 2 percentage points, essentially at the expense of Europe. What can be expected from the U.S. reindustrialization?
It is first of all interesting to note that this was at the centre of President Obama’s economic program, but that it has come about for very different reasons: not via renewable energy but via shale gas. This has many consequences of an economic, financial and geopolitical nature. The reindustrialization will make it possible to gradually reduce the trade deficit and all the more so in that the substitution of natural gas for oil in all possible applications, such as electricity generation and chemicals, will also reduce the U.S. trade deficit in energy. The long period of trade deficit increases will be supplanted by a long period of trade deficit decreases.
That means that the “global imbalances” between the structural trade deficit of the United States and the structural trade surpluses of emerging countries, and in particular China, will gradually be reabsorbed, which is good news for international financial stability. That also probably implies that the long period of the dollar’s decline ― from 1970 to 2008 ― will be replaced by a long period of renewed appreciation of the dollar, including with respect to emerging Asian countries.
The United States, thanks to shale gas, has reduced its oil imports to 10 million barrels a day currently from 14 million in 2008; in a few years this will make it possible to no longer import oil from anywhere other than the American continent ― Canada, Mexico and Venezuela ― and not at all from the Middle East, which will probably lead to a significant loss of the U.S. interest in Middle East stability.