After the flood of figures overnight, capped by the Fed’s board minutes, two things can be said with confidence about the US economic recovery.
The first is that it is there, definitely; but will be far more a tease than other rebound because the sectors that triggered it, housing and banking, remain very sick.
The second thing that can be said with certainty is: it will be a very, very slow recovery that will tax the nerve of politicians, bankers, investors, and next year, voters.
And additional point can be made: that if you believe in the US recovery story, then current market valuations on Wall Street are more about profits in 2011, not next year, given the lack of any sign of a strengthening trend next year.
Basically the data overnight showed house prices up again (and for two quarters in a row) in September. That was after a strong rise in existing home sales in October as buyers got set in case a tax rebate wasn’t extended. it has been, and it had been widened, which will help.
Consumer confidence in the US Conference Board’s monthly survey was a touch better, but not much. But offsetting all that was the forecast downgrade in third quarter growth from an annual 3.5% (or 0.9% quarter on quarter), to 2.8%, or 0.7%.
And figures from the lead bank regulator showed a record fall in bank lending in the September quarter, and another sharp rise in non-performing loans: both developments that tell us that financing the rebound next year will be very, very tough for a lot of banks.
And then the Fed’s minutes showed that it was worried about the damage low interest rates could do if left for an “extended period”, which they are. Fed officials raised their growth forecasts for 2010 to 2012, but then indicated that they unemployment continuing above trend levels for three years.
The Fed forecast that the unemployment rate could remain high next year around the range of 9.3% to 9.7% and would only drop modestly to 8.6% in 2011. The unemployment rate hit 10.2% in October, a 26-year high. The Fed had forecast in June that unemployment could hit a range of 9.5% to 9.8% in 2010 and 8.8% in 2011, so the latest forecast is slightly more optimistic, at best.
“Most members projected that over the next couple of years, the unemployment rate would remain quite elevated and the level of inflation would remain below rates consistent over the longer run with the Federal Reserve’s objectives,” the minutes said.
Despite the higher Fed forecasts (which have provided to be more optimistic than actual outcomes), US economists say the downwards revision in the third quarter figure adds to fears the economy will not be able to grow fast enough to start generating enough jobs to make a significant reduction in the jobless rate.
Despite the small rise in consumer confidence, it, reversed only a quarter of October’s unexpectedly sharp fall.
Consumers’ assessment of their current predicament remains stuck at levels last seen in the early 1980s.
Analysts made a big deal of the part of the confidence survey that showed that while fewer people surveyed saw further deterioration in the economy, there were also fewer consumers believing that business conditions are going to get better.
So a teaser of a recovery, and no real certainty, despite what markets might say by rushing higher.
Now for the great post-Thanksgiving sales season: will it save the American economy, as we know it, or will it be as much a tease as the wider recovery is proving to be?