'From The Economist print editionWhether or not it's an official recession, America's economy will feel grim Robin Chavalier
IN RECENT years, it has rarely paid to be pessimistic about America's economy. Time and again, worried analysts (including The Economist) have given warning of trouble as debt-laden and spendthrift consumers are forced to rein in their spending.
So far, that trouble has been avoided. The housing market peaked early in 2006. Since then home-building has plunged, dragging overall growth down slightly. But the economy has remained far from recession. Consumers barely
blinked: their spending has risen at an annual rate of 3% in real terms since the beginning of 2006, about the same pace as at the peak of the housing boom in 2004 and 2005.
At the same time, rapid growth in emerging markets coupled with a tumbling dollar has provided the American economy with a new bulwark, one that strengthened even as financial markets seized up over the summer. Exports soared at an annual rate of 16% in the third quarter. Thanks partly to strong export growth, revised GDP figures due on November 29th are likely to show that America's output grew at an annual rate of around 5% between July and September. Never mind recession: that is well above the economy's sustainable pace of growth.
But the good news may be about to come to an end. The housing downturn has entered a second, more dangerous, phase: one in which the construction rout deepens, price declines accelerate and the wealth effect of falling prices begins to change consumers' behaviour. The pain will be intensified by a sharp credit crunch, the scale of which is only just becoming clear. And, in the short term, it will be exacerbated by a spike in oil prices—up by 25% since August—that is extreme, even by the standards of recent years. The result is likely to be America's first consumer-led downturn in close to two decades. Home is where the rot starts
The biggest source of gloom is housing. Despite almost two years of plunging construction, the collapse of the property bubble is far from finished—and its impact on broader consumer behaviour has barely begun. So far, the housing recession has been a builders' bust. Housing starts are down by 47% from their peak and residential building now accounts for 4.4% of GDP, down from a record of 6.3% in 2005. That is a big drop, but not yet unusually long or deep by historical standards. Nouriel Roubini and Christian Menegatti, of Roubini Global Economics, point out that the seven other housing recessions since 1960 lasted an average of 32 months and saw housing starts fall by 51%.
Judging by the large number of unsold homes and the pace at which buyers are cancelling contracts (around 50% according to some homebuilders), it is clear that builders have further to cut back. Richard Berner, of Morgan Stanley, expects a further 25% decline, taking the pace of housing starts in 2008 to below 1m, the slowest since records began in 1959.'
Geen opmerkingen:
Een reactie posten