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There’s no question that the U.S. recovery from its worst recession since the 1930s has been frustratingly slow.Bruce Kasman, J.P. Morgan’s chief economist, thinks that assertions of permanent structural decline are exagerrated. These pessimists fail to see the structural signs of a healing private sector that could provide a foundation for “a sustained upside growth surprise in the not too distant future…”
In a piece for The Markit Magazine, Kasman points out three major trends that will drive the recovery:
- 1: A strong, hiring corporate sector: Kasman calls corporate ability to heal and produce strong results “The most impressive aspect of US performance over the past four years…” Despite a deep recession and weak recovery, profit margins are back to peak levels, and U.S. companies are increasingly competitive worldwide. Strong margins, and increasing confidence in the recovery should lead to corporate expansion and hiring. The proof is in the numbers, with private sector jobs increasing by 2 million, and private sector wages up 4.1 per cent over the last year.
- 2: A turnaround in consumer behaviour. The financial crisis was very hard on the American household, with lower job security, evaporating wealth, and a freeze in credit availability. Their reaction was understandably defensive, with households pulling back investment and building savings. This precautionary behaviour has been a drag on the recovery. Though household deleveraging will continue, spending is starting to move more closely with trends in income, which will help support the recovery.
- 3: Housing provides a lift. Weakness in the housing market has held back demand, credit availability, and hiring. We’re finally starting to see signs of a turnaround. The recent sharp increase in construction may not last, but an improved labour market and ultra low mortgage rates should stimulate demand. Sales of new homes are up 20 per cent over the last 6 months, and prices may have finally stabilised.
These aren’t small trends. Assuming they hold, things should look pretty good for the U.S. economy.
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