INFLECTION POINT: Here's Morgan Stanley's Presentation On How The US Economy Will Take Off In 2013

morgan stanley inflection point

Photo: Morgan Stanley

Optimism for the U.S. economy has been coming back in a big way as the surprisingly positive data flows in.Yesterday, Morgan Stanley’s Vincent Reinhart published a big report titled “US Economics: An Inflection Point Ahead.”

“The severe financial crisis of 2008-09 necessitated significant downward adjustments by the private sector to the levels of aggregate demand and efficient supply,” he wrote. “As the event recedes further into history, however, the drag on growth from these ongoing level adjustments plays out.”

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Reinhart expects to the economy to accelerate in a major way within the next few months.

“In the Morgan Stanley forecast for the US, the trajectory of economic activity marks an inflection point midway through 2013,” he wrote. “Economic activity is currently held down by fiscal consolidation. However, the expansion of real GDP steps up to around 2-3/4 per cent in the second half of this year and beyond.”

In a 22-slide presentation accompanying the report, Morgan Stanley’s U.S. economics team points to an array of bright spots including the rebounding housing market, the resilient consumer, and the improving labour market.

They also point to major issues that will continue to hinder growth.  However, the overall message is an extremely positive one.

NOTE: Thanks to Morgan Stanley for allowing us to feature Mr. Reinhart’s presentation.

The private sector is helping pull the economy out of the slow post-crisis environment.

After the crisis, banks and households deleveraged, which was a huge drag on growth.

Housing is now a much smaller part of the economy, but it's improving quickly.

Household wealth is climbing and consumer sentiment is improving.

Business investment continues to be low.

And the government has been tightening.

Trade is now a positive for GDP.

The unemployment rate is high, but it continues to come down.

Inflation is tame.

The Federal Reserve frequently revises down its overly optimistic forecasts.

It's clear that the Fed will maintain loose monetary policy for a while.

The Fed's quantitative easing programs have bloated its balance sheet.

Morgan Stanley admittedly was overly concerned about inflation and unemployment.

Morgan Stanley's current forecasts could be proven incorrect depending on the size of government cuts and business investment among other things.

Debt in the developed markets continue to be very high.

Asians have been saving and investing less.

Productivity growth continues to be low.

Actual inflation has been much more volatile than inflation expectations.

Corporate profits are sky-high while wages have been trending down.

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