Don't be.
"U.S.: Poised for a Big Comeback?
(Export Development Canada â Peter G. Hall)
Worried about the U.S. economy? Youâre not alone. U.S. equity markets fell for six weeks in a row as nervous investors piled into U.S. treasuries, driving the 10-year yield down to 2.8%, the lowest level since November. Key indicators from various sectors of the economy have swooned. Is this just more evidence of a capricious market, or is this chapter 1 of the U.S. version of Japanâs âlost decadeâ?
Significant financial crises in advanced economies are normally followed by a protracted 4-7 year slump before job creation and growth gets back on track. Japanâs case redefines âprotractedâ. Losses from the collapse of the real estate bubble were catastrophic for Japanese business, rendering most of them insolvent. In many cases, banks opted to muddle through rather than foreclose, saddling banks with non- or poorly-performing loans, and companies with years of heavy debt payments and little incentive to borrow and invest. Is the current US situation any different?
Yes, in a critical sense. Aside from property developers, most U.S. non-financial corporations were not exposed to real estate. In fact, notwithstanding the financial crisis, right now they are doing better than ever. In Q1 2011, U.S. corporate profits hit an all-time high of $1.73 trillion. Moreover, balance sheets have never been more liquid: U.S. companies are sitting on almost $2 trillion of cash. Exports are helping, as theyâre up 17% in the first four months of 2011 compared to the same period last year.
How are these corporations doing so well when so many indicators are pointing south? One of the keys is the U.S. productivity record. Over the past decade, the U.S. has consistently churned out 50% higher annual labour productivity growth than the OECD average, and maintained that growth through the ups and downs of the cycle. The result? The U.S. is now producing 1% more real goods and services than it did at the pre-crisis peak, but with 6 million fewer jobs.
However, there are limits to these productivity gains, and we believe that increased hiring is imminent. Despite Mayâs bevy of gloomy indicators, underlying demand still appears strong, and surveys of U.S. business hiring intentions are actually reasonably positive â suggesting that the current pause is a temporary wait-and-see approach to what looks like a transitory economic interruption.
What about all the cash? It has been in wait-and-see mode too, parked in anticipation of more solid growth. But itâs beginning to loosen up. U.S. banks are again reopening the credit taps. For 6 consecutive quarters, senior loan officers have loosened their belts. And they have lots of money to lend. U.S. bank profits in Q1 reached $29 billion, just shy of the pre-crisis peak, and they are sitting on $1.6 trillion of excess cash and reserves. As this money makes its way back into the economy, momentum is expected to build, helping to work off the remaining pre-recession excesses and paving the way for a true and sustainable recovery â for the U.S., and by extension, for the world.
The bottom line? Much is being made of the U.S. economyâs weaknesses, but it has fundamental strengths that are not too far below the surface. Investors are understandably nervous about current data, the non-continuation of QE2 and the ultimate withdrawal of fiscal stimulus. All the while, the U.S. economy is moving toward balance, and is armed to facilitate growth at that point. The bears who predict a lost decade for the U.S. economy might be sorely disappointed. Prepare for growth in 2012."
I know, debt debt debt--yada yada yada. Remember, an improving economy means improving ability to pay.
"U.S.: Poised for a Big Comeback?
(Export Development Canada â Peter G. Hall)
Worried about the U.S. economy? Youâre not alone. U.S. equity markets fell for six weeks in a row as nervous investors piled into U.S. treasuries, driving the 10-year yield down to 2.8%, the lowest level since November. Key indicators from various sectors of the economy have swooned. Is this just more evidence of a capricious market, or is this chapter 1 of the U.S. version of Japanâs âlost decadeâ?
Significant financial crises in advanced economies are normally followed by a protracted 4-7 year slump before job creation and growth gets back on track. Japanâs case redefines âprotractedâ. Losses from the collapse of the real estate bubble were catastrophic for Japanese business, rendering most of them insolvent. In many cases, banks opted to muddle through rather than foreclose, saddling banks with non- or poorly-performing loans, and companies with years of heavy debt payments and little incentive to borrow and invest. Is the current US situation any different?
Yes, in a critical sense. Aside from property developers, most U.S. non-financial corporations were not exposed to real estate. In fact, notwithstanding the financial crisis, right now they are doing better than ever. In Q1 2011, U.S. corporate profits hit an all-time high of $1.73 trillion. Moreover, balance sheets have never been more liquid: U.S. companies are sitting on almost $2 trillion of cash. Exports are helping, as theyâre up 17% in the first four months of 2011 compared to the same period last year.
How are these corporations doing so well when so many indicators are pointing south? One of the keys is the U.S. productivity record. Over the past decade, the U.S. has consistently churned out 50% higher annual labour productivity growth than the OECD average, and maintained that growth through the ups and downs of the cycle. The result? The U.S. is now producing 1% more real goods and services than it did at the pre-crisis peak, but with 6 million fewer jobs.
However, there are limits to these productivity gains, and we believe that increased hiring is imminent. Despite Mayâs bevy of gloomy indicators, underlying demand still appears strong, and surveys of U.S. business hiring intentions are actually reasonably positive â suggesting that the current pause is a temporary wait-and-see approach to what looks like a transitory economic interruption.
What about all the cash? It has been in wait-and-see mode too, parked in anticipation of more solid growth. But itâs beginning to loosen up. U.S. banks are again reopening the credit taps. For 6 consecutive quarters, senior loan officers have loosened their belts. And they have lots of money to lend. U.S. bank profits in Q1 reached $29 billion, just shy of the pre-crisis peak, and they are sitting on $1.6 trillion of excess cash and reserves. As this money makes its way back into the economy, momentum is expected to build, helping to work off the remaining pre-recession excesses and paving the way for a true and sustainable recovery â for the U.S., and by extension, for the world.
The bottom line? Much is being made of the U.S. economyâs weaknesses, but it has fundamental strengths that are not too far below the surface. Investors are understandably nervous about current data, the non-continuation of QE2 and the ultimate withdrawal of fiscal stimulus. All the while, the U.S. economy is moving toward balance, and is armed to facilitate growth at that point. The bears who predict a lost decade for the U.S. economy might be sorely disappointed. Prepare for growth in 2012."
I know, debt debt debt--yada yada yada. Remember, an improving economy means improving ability to pay.
