NEW YORK — Europe appears on the brink of another recession. Islamic militants have seized Iraqi territory. Russian troops have massed on the Ukraine border, and the resulting sanctions are disrupting trade. An Ebola outbreak in Africa and Israel’s war in Gaza are contributing to the gloom.
It’s been a grim summer in much of the world. U.S. stocks sagged Friday on reports that Ukrainian troops attacked Russian military vehicles that had crossed the border. But investors in the United States have been shrugging off most of the bad news — so far at least.
A big reason is that five years after the Great Recession officially ended, the U.S. economy is showing a strength and durability that other major nations can only envy. Thanks in part to the Federal Reserve’s ultra-low interest rates, employers have ramped up hiring, factories have boosted production and businesses have been making money.
All of this has cushioned the U.S. economy from the economic damage being suffered abroad. And investors have responded by keeping U.S. stocks near all-time highs.
China, the world’s second-biggest economy, is struggling to contain the fallout from a runaway lending and investment boom that’s powered its growth since before the 2008 financial crisis. The economies of Japan and Germany, the world’s third- and fourth-largest, shrank in the spring. So did Italy’s.
It might not take much — an oil-price spike, a prolonged recession in Europe, a plunge in business or consumer confidence — to derail the global economy.
Here’s a look at the strengths and weaknesses of the U.S. economy and others, and why the calm in markets may or may not last:
• MORE JOBS
Hiring in the United States has surged in the first seven months of this year.
Monthly job gains are averaging a solid and steady 230,000, based on government figures. That’s roughly an average of 35,000 more jobs each month compared with last year.
Fewer people are applying for unemployment benefits. And fewer new hires are working as temps. Both trends suggest stronger job security.
Economists say the cumulative effect of all those additional paychecks should propel growth and help insulate the U.S. economy from trouble abroad.
Though low-paying industries account for much of the hiring, many economists foresee more jobs coming from higher-wage industries such as construction, engineering and consulting.
Mark Zandi, chief economist at Moody’s Analytics, expects monthly job growth to accelerate to an average of 275,000 sometime next year.
• RECORD PROFITS
Earnings at companies in the Standard and Poor’s 500 index are on track to jump 10 percent in the second quarter from a year earlier, according to S&P Capital IQ, a research firm. That would be the biggest quarterly gain in nearly three years.
That news has helped the S&P 500 index climb 5 percent this year, extending a bull market into its sixth year. The gains have been remarkably steady, too. The stock market hasn’t suffered a “correction” — a drop of 10 percent — in nearly three years, twice as long as is typical.
Still, some markets outside the U.S. are falling.
Japan’s benchmark Nikkei 225 is down 6 percent this year. Germany’s DAX has lost nearly 5 percent, and France’s CAC 40 is down 3 percent.
• HELP FROM CENTRAL BANKS
The Fed has been paring its pace of bond purchases and will end them altogether this fall. The purchases have been intended to hold down longer-term rates and prod consumers and businesses to borrow and spend. But the Fed has stressed that it will keep short-term rates at low levels even if unemployment reaches a level usually linked to rising inflation.
The Bank of Japan is buying bonds to stimulate growth and the European Central Bank is facing calls to do so itself.
• FOREIGN EXPOSURE
Though the U.S. economy has managed so far to withstand the economic and geopolitical turmoil abroad, it isn’t immune to it.
And the bad news kept coming this past week.
The 18-country eurozone, a key region that emerged from recession last year and accounts for nearly a fifth of global output, failed to grow at all in the second quarter of the year. “The European recovery is faltering,” says Jack Ablin, chief investment officer at BMO Private Bank.
Escalating tension between the West and Russia isn’t helping. Exports from the eurozone to Russia account for less than 1 percent of the region’s economic output. But Germany, Europe’s largest economy, is vulnerable. It gets nearly all its natural gas from Russia. The German economy contracted 0.2 percent in the second quarter compared with the previous quarter. And business confidence in Germany is plummeting.
Tom Stringfellow, chief investment officer at Frost Investment Advisors, says the tit-for-tat sanctions between the West and Russia over Ukraine could push the eurozone over the edge. “Unless that is resolved quickly, you could see another recession,” he says.
• WHERE ARE THE SHOPPERS?
Retail sales stalled in the United States last month. Wage growth has failed to surpass inflation, leaving many consumers unwilling or unable to spend more. Sales at auto dealers and department stores fell in July.
Wal-Mart this week cut its profit outlook. Macy’s trimmed its sales forecast.
“Consumers are finding they can live without a lot of the stuff they used to buy automatically,” says Joel Naroff, president of Naroff Economic Advisors, in a research note. “Right now, people are just not parting with their hard-earned funds.”
• OIL SPIKE
Will fighting in Iraq and Ukraine upend global energy markets, and raise the cost of filling your gas tank and heating your home?