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US
Recovery: Not Now, Not Never
BY
PETER G. HALL
EDC
Vice-President and Chief Economist
Frustration
is building. It is now almost two-and-a-half years since the US
recession officially ended. We would normally be well into the next
growth cycle by now. Not this time. Instead, growth sagged in the
summer, unemployment remains stubbornly high, and news is mostly
negative. Talk of double-dipping even surfaced amid speculation of
long-term stagnation. Will the US economy ever recover?
Talk to the average US consumer, and you’d likely get a resounding
‘no!’ From the recessionary band where it hovered for over 30
months, consumer confidence has taken a rare tumble back into the abject
pessimism zone last seen at the height of the financial crisis in 2009.
Why so glum? You would be too if widespread financial crisis carved 29%
from your real estate holdings, and three years later one-quarter of the
housing market was still underwater. Add to that Europe’s woes, a
plunge in stock markets and a general sense of malaise, and you get
their gloom. But is the gloom warranted?
Consider US housing. With affordability measures at their best levels
since the 1970’s, mortgage rates hovering at 30-year lows and vacancy
rates for rental properties falling, homeownership is becoming
increasingly attractive. Also, construction of new homes is in better
shape as new builds take place in regions where demand is heating up. By
late summer, there was a 6.6 month supply of new, unsold homes on the
market, admittedly well above the 4.5-month stability mark, but a vast
improvement over the 12.2-month peak in 2009. The ratio of housing stock
to households suggests a return to equilibrium sometime in 2013 –
enough to boost 2012 housing starts by a stunning 42%.
Also, check out that US consumer. Radical changes in saving patterns
have reduced average debt loads from a peak of 130% of disposable income
in Q4 2008 to just 115% by mid-2011, a path that will see debt fall
below 100% of disposable income by mid-2012. This is far faster progress
than most economy-watchers expected, and will bring increased momentum
to US consumer spending next year. In fact, momentum is already
building, in spite of the gloom. Real spending – a whopping 70% of US
economic activity – is now rising at a steady and sustainable pace.
It’s good news for the US, but also for a fledgling world economy in
search of a hefty and dependable growth engine.
At the same time, American business has never been in better shape:
corporate profits reached an all-time record high of USD1.9 trillion in
the second quarter, and corporate balance sheets are flush with over
USD2 trillion of cash. Access to credit is also vastly improved, with
the Federal Reserve survey reporting six consecutive quarters of
loosening credit standards. Commercial and industrial loans grew by
USD34.3 billion in the second quarter of this year, and USD22 billion in
August alone; at the current rate of growth, business loans will be back
to pre-crisis levels in just over a year. But is there any current
activity? You bet. In spite of swooning business sentiment, non-defense
factory orders are booming, up this year by an impressive double-digit
pace.
The bottom line? Cut through the headlines to real US activity, and
three solid points emerge: first, the world’s number one economy is
steadily healing. Second, businesses and banks are poised and ready with
the ammunition to accommodate a fast-approaching and robust recovery.
And finally, just when we needed a bit of assurance amid the volatility
and gloom, actual activity levels among US consumers and businesses are
rising significantly. Pray that this process doesn’t get interrupted.
The
views expressed here are those of the author, and not necessarily of
Export Development Canada.
©EDC
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