Tuesday, October 18, 2011

The US Economy- Are We Really In An Expansion and Not Re-Entering Recession?

Over the past week or so, a number of pundits, including a handful of equity fund investment officers, have appeared on cable business news channels to assert that the US economy is expanding, not entering a recessionary phase. They point to some marginally-lower unemployment filings, or slightly-increased consumer spending.

But I've been noticing some larger trends which would seem to suggest otherwise.

For example, I've seen one or two analyses in the past few months which have clearly illustrated that real US median income has has been flat, or declining, over a decade or more.

We know unemployment is very high. Mort Zuckerman estimated, in a weekend Wall Street Journal edition interview, that real total un- and underemployment is above 19%.

Consumers continue to attempt to deleverage their personal balance sheets of short term liabilities. Meanwhile, values of US housing stock remains significantly lower than it was 3 or 5 years ago. So it would seem both personal incomes and assets are not a source of new spending, nor are liabilities. And employment in gross total terms remains low.

US businesses continue to post profits and spend, but much of those flows relate to international, overseas business volumes, not US-based activity. That's why, like Britain in the 1960s and '70s, US corporate performance doesn't imply that US employment activity will be correlated with said performance.

The US financing sector isn't doing a lot of consumer nor small business lending. Large businesses have atypically large amounts of cash on their balance sheets, in order not to rely on banks and debt markets which dried up in 2008. So that doesn't seem to be a source of growth.

Just where do pundits assume the growth they contend is occurring is sourced?

Do they believe that, in a bifurcating US economy, the still-employed, better-off segments continue to spend, thus offsetting the belt-tightening of the lower-income segments of the population?

I do not have the data, but wonder if the lack of worse US personal economic activity statistics results from those with higher incomes and asset levels masking the declining spending and asset bases of those less fortunate?

Then there's Europe. Just yesterday, Angela Merkel publicly warned that the fix for the continent's debt problems isn't going to come from simply opening up German wallets. Others, notably Kyle Bass, who correctly foresaw the housing bubble's bursting, caution that, along with asset value losses which are certain to come from Europe's financial troubles, will be lower economic activity which will spread back to the US in the form of lower demand and, thus, lower US export levels and resulting recessionary pressures.

I am just not seeing a large silver lining in any of this. Nor, for that matter, much unadulterated, absolutely healthy economic data suggesting a healthy US economic expansion anytime soon.

Bloomberg's Tom Keene had Bob Albertson, a longtime banking analyst, as a guest yesterday on his noontime program. When he queried Albertson about his stance on financial and banking stocks, Albertson of course was bullish. After all, he's a sector analyst. What else can he say?

Then he blustered about banks leading an equity market rally. Then, finally, when Keene asked for a timeframe, Alberstson stalled, finally saying over the next 'year or two or three.'

My God!

The equity market disintegration of 2008 was three years ago this month. Would Albertson have said the same thing three years ago- to just hold on, eventually the market levels would recover?

I continue to view the optimism of pundits as book-talking and self-interested calming of investor nerves. A broad, deep array of supporting economic data, and positive trends in Europe and the US regarding financial sector issues, remain missing.

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