US Economy, Why Isn't a Strong Recovery Around the Corner?

[Sphere]

Reading through some economic reports on savings rates/capital buffers I had this thought a few weeks ago, but wasn't brave enough to actually formulate a prediction. However, this recent report showing a small jump in consumer spending doesn't allow me to further avoid it. There is sizable pent up demand and capital in the US economy and it might be about to break. This is somewhat reflected in the recent performance of the stock market, and an uptick in consumer spending; the money has to go somewhere.

The financial industry is doing well (even AIG is ready to sell stock again), manufacturing has been doing well, the auto industry is doing well, really the only soft spot remaining is the housing market but housing prices are looking to level off or turn positive in the next quarter or so. So considering all this there isn't really a fundamental reason the US economy should not return to normal growth (3-4%) sometime in 2011.

Despite this my gut is still telling me that we have a year or more of ~2% growth still ahead of us, but my brain is saying that I am missing the signs that we are in a prelude to an uptick in the economy. I mean I would really be kicking myself if leading into the holiday season there was a small stock market rally, an increase in consumer spending and the housing market finally reversing and then be surprised when the holiday season sparks a good 2011-Q1 and the economy never looks back. It would look like I was following the herd mentality and letting my mental faculties lapse.

But common wisdom (including the Fed) says my gut is right and my brain is wrong. I would be very grateful if someone more learned then myself on these matters could help me see what I am failing to consider.

[Vizsla]

I found this:
http://www.economicpopulist.org/cont...snt-recovering
He explains his point better than I ever could. Now I'm going to settle down with a cup of tea and read it till I understand it properly.

[Boyar Son]

I found this:
http://www.economicpopulist.org/cont...snt-recovering
He explains his point better than I ever could. Now I'm going to settle down with a cup of tea and read it till I understand it properly.

Lord..I just got depressed.

[Plan C]

Lord..I just got depressed.

I know, fractional reserve monetary system has been a thorn in my soul for a fair while now.
And yet no one cares...

[Pontifex Maximus]

Mudpit --> Academy

[Snoopy]

Malinvestment in the economy hasn't been remedied yet. Furthermore, even assuming the US economy was actually improving (it isn't), the loss of the temporary jobs (such as Census jobs) is making things look worse, which in turn makes things get worse faster.

Right now, we could either get hyperinflation (The big rise in Gold recently seems to show that, as does the falling USD), or deflation and a slightly harsher depression (as the current sluggish growth would suggest). The second would be probably preferable, as hyperinflation will trash the US economy completely. However, the second is probably more likely right now (assuming the Fed doesn't try QE2). A strong recovery is incredibly unlikely, as if it was coming, it would have long since arrived.

[Armenum]

Must always consider the global factor. In the present day the world economies are more interconnected than ever as they are approaching a more unified "global economy". What happens in EU affects US, what happens in US affects China, and vice versa. The economy of US won't make a strong and large recovery until the other economies of big economic powers also follow a similar path. People should pay more attention as a result to the events occurring in all nations and continents, as what happens there let it be protests, cuts, etc. will most likely affect your own country in some way.

[JP226]

What's happening is everyone is hoarding cash and most business spending is replacing capital that has been put off for as long as possible. Theoretically once the dollar actually begins to depreciate, the US economy could bounce out fairly quickly with export led growth. It's happened time and time again through financial crisis that has hit countries like Russia and South Korea. No reason to think it can't happen here. However, you still have a housing market and that's suppressing consumption and driving up savings. That's not a bad longterm scenario, but in the shortrun it's not ideal. And until housing turns around or we hit a level of growth above and beyond replacement of houses themselves, the economy is going to sag.

As far as the markets are concerned, right now we're looking at a Bonds boom, again feeding the warchest of the large companies and the stock rally in Spetember I think was just a play at catch up on the quarter. Which we didn't end all that much higher over that period of time. I'd even go so far as to say I wouldn't be shocked to see a correction for the first few weeks of October given the levels we traded up last month.

Realistically the economy could begin to really hit a recovery stage as early as January. Alot of the peices and parts are there. The big unknown quantity right now is the stimulus drying up. The private sector is weak and alot of what was propping it up was government supported and now that that's gone, what happened with the housing credit could happen again.

[Platon]

I'm with the doom and gloomers on this one.
Every country is dreaming of a recovery boosted by increased exports. It can't happen.. whos going to buy? You can see the panic of central banks depreciating their currencies. We have close to zero % interest rates for over 2 years and we still don't see a recovery. The fake paper money are loosing their value, gold is over 1300$..
I think the reason why the stock and bondmarket is high, its because people (except those who buy gold) don't know where else to place the money. The 7-8 big banks control 90% of the action anyway, and they are propping up wall street. It's all fake guys. This is a systemic capitalist crisis.. the big one this time. It's not local, it's global. The only way out of this mess is war. It will start with a false flag attack.. history repeating itself

[Big War Bird]

My business ing booming. My wife is earning almost 50% more than she was last year at this time. Suck it losers!

But seriously, things are looking good for the people with jobs. Profits are up, and so are personal incomes and spending.

Amounf other things, one problem is that we have a president barely qualified to operate a coffee machine that views the free economy as his personal stash to pay off a left wing wish list 40 years in the writing.

[Exarch]

that's the problem with modern 'democracy'
it's degenerated into a fat cat crony capitalism model; fact is
the first stimulus should've been given to small businesses rather than massive banks who gave massive pay rises to their members

[Mr. Scott]

It seems to me that the US economy is recovering (slower then I would like, but nonetheless recovering), but that the job market is lagging behind. We may see a rising economy, but stagnant job market for the next decade in the US. So Good and bad... I guess.

[Vizsla]

Unless you end up like Japan with a recession that lasts 20 years and a series of ineffectual stimulus packages that only result in increasing government debt.
If this happens I’m hoping the talk about the rest of the world decoupling from you yanks and the developing world driving the recovery for the rest of us is true.

[Snoopy]

Unless you end up like Japan with a recession that lasts 20 years and a series of ineffectual stimulus packages that only result in increasing government debt.
If this happens I’m hoping the talk about the rest of the world decoupling from you yanks and the developing world driving the recovery for the rest of us is true.

Japan was unique in that it had its big crash while the rest of the world was in a boom. They could still export. The USA right now, on the other hand, is having a recession while the rest of the world is having recessions of varying quality. If the US gets what Japan got, they will be much worse off.

[Sphere]

Spoiler Alert, click show to read: 

What's happening is everyone is hoarding cash and most business spending is replacing capital that has been put off for as long as possible. Theoretically once the dollar actually begins to depreciate, the US economy could bounce out fairly quickly with export led growth. It's happened time and time again through financial crisis that has hit countries like Russia and South Korea. No reason to think it can't happen here. However, you still have a housing market and that's suppressing consumption and driving up savings. That's not a bad longterm scenario, but in the shortrun it's not ideal. And until housing turns around or we hit a level of growth above and beyond replacement of houses themselves, the economy is going to sag.

As far as the markets are concerned, right now we're looking at a Bonds boom, again feeding the warchest of the large companies and the stock rally in September I think was just a play at catch up on the quarter. Which we didn't end all that much higher over that period of time. I'd even go so far as to say I wouldn't be shocked to see a correction for the first few weeks of October given the levels we traded up last month.

Realistically the economy could begin to really hit a recovery stage as early as January. Alot of the peices and parts are there. The big unknown quantity right now is the stimulus drying up. The private sector is weak and alot of what was propping it up was government supported and now that that's gone, what happened with the housing credit could happen again

I too think a depriciation of the dollar is a key. Is this recent drop in the dollar and upward push in oil something to take note of, or just a temporary move due to speculation on the Feds plan of QE2? I guess the same question is will the new quantitative easing devalue the dollar enough to cause a spark or not?

Housing prices and consumer confidence are still playing along with my suspisions, with a few people forecasting stronger than expected spending for the coming holiday season, though most are still not bullish. The stock market has continued its upward trend that started in October, though I am not considering it that strong of an indicator as most anything could cause a correction. It seems that the October unemployment report is going to be bad, which may throw a wrench into consumer confidence and the investment markets, killing the momentum leading into the holidays.

Most anaylsis I have read is taking this all as a continuation of a sideways trend we have seen for the past few months, though nothing as of yet has undermined my hypothesis of an unexpected rebound in January/Febuary. A big unkown varible in all this is what market and consumer reaction, if any, will there be to the election results in November. I am inclined to believe the predicted GOP gains will increase confidence and produce a noticiable boost, though I don't have much to back that up.

[austin.weathers]

I believe one of the major issues is the gross lack of manufacturing jobs in America. The American economy has turned into a service economy... we don't have manufacturing on the scale that we used to have.

When an economic crisis arises, well... there are only so many services that people need.

[Georgy Zhukov]

I believe one of the major issues is the gross lack of manufacturing jobs in America. The American economy has turned into a service economy... we don't have manufacturing on the scale that we used to have.

When an economic crisis arises, well... there are only so many services that people need.

That logic can be used with a manufacturing based company as well, when an economic crises arises, well. . . there are only so many consumer goods that a person needs. Look at GM.

[austin.weathers]

That logic can be used with a manufacturing based company as well, when an economic crises arises, well. . . there are only so many consumer goods that a person needs. Look at GM.

True, but the problem with GM was that it relied upon trucks and suv's too much. It also started making an inferior product.

Honestly, right now, I'm looking at buying a Japanese made TRUCK!

The key thing about manufacturing is that with manufacturing, you have your people actually making things. Things that can also be exported to make money. With services, you can't really do that.

I mean, the reason why people in America can't find jobs is because we do not make anything anymore. Which is so sad.

[Mr. Scott]

True, but the problem with GM was that it relied upon trucks and suv's too much. It also started making an inferior product.

Honestly, right now, I'm looking at buying a Japanese made TRUCK!

The key thing about manufacturing is that with manufacturing, you have your people actually making things. Things that can also be exported to make money. With services, you can't really do that.

I mean, the reason why people in America can't find jobs is because we do not make anything anymore. Which is so sad.

However, some good news is that the US manufacturing is leading this recovery. Ford is now reporting record profits and is even hiring more people.

Intel invested billions into the US recently in factories that will provide jobs to more then 30.000 americans.

I have a feeling that through this recession the American consumerism died a bit, but is being replaced by more american manufacturing. Which is very good for the job market.

[JP226]

The makeup of an economy doesn't really matter as long as the FDI is controlled by the US. It doesn't matter if manufacturing takes place so long as American corporations keep that cash flowing into the US, from which we use that to buy those products our own companies are making abroad at cost. Same thing happened to the North following reconstruction and nowadays they have a GDP that Europeans could only dream of. NYC alone has a GDP, keep in mind we're talking roughly 8 million people, that produce 1.5 trillion dollars. That's fing phenomenal. London can't hold NYC's jockstrap.

If the complaint is salaraies and durables producing more than nondurables in take home pay, well... what does NYC actually manufacture? I'm an economist and I make MUCH more doing what I do now than I ever could on an assembly line.