For economic growth to be self-sustaining, without extraordinary fiscal and monetary accommodation, ‘Main Street’ needs to feel confident about its employment and financial prospects, in our view. Wall Street has clearly benefited from government and Federal Reserve policies – the stock market and earnings have risen to record levels – but the average household has struggled with depleted savings and stagnant incomes. Moreover, government support has already begun to ‘taper – temporary payroll tax reductions have ended, unemployment insurance has been scaled back, food security programs have been cut, and sequestration remains in effect (although further spending cuts may soon be lifted in budget negotiations). Given this backdrop, we think recent employment and manufacturing data are encouraging. In The Weekly View, 6/22/09, we set forth ten conditions that we thought were necessary for a sustainable economic recovery. When we last revisited this list on September 16, most of the conditions were met but still signaled below-average growth. Since then, despite a government shutdown, the most recent data show that nearly all of our requirements have been fulfilled and continue to improve. Thus, we expect accelerating year-over-year economic growth in 2014.
The RiverFront team did not specify how much accelerating growth they are expecting for the US economy. My own view is that modest GDP growth will continue given the Fed’s ongoing monetary stimulus, plus the USA’s inherent advantages of competitive energy prices and an expanding lead in technological innovation.
It is not quite five years since the USA’s credit crisis recession bottomed, so previously deleveraging consumers remain somewhat cautious. Moreover, many families have seen little or no increases in their wages. Chastened and more regulated banks are similarly cautious, particularly regarding business loans to small companies.
There are some informative graphics in this issue of The Weekly View which may interest subscribers.Back to top