The news continues to be bad for the battered U.S. economy. For those looking for a quick economic recovery any time soon …. well don’t. The fact appears to be that it could take U.S. consumers a minimum of five more years to pay off their mountain of debts and begin building up some savings.
Stephanie Pomboy is the founder and president of MacroMavens, a New York firm that forecasts macroeconomic trends for institutional clients and thinks the outlook is bleak.
“I expect that we’ll just have a prolonged period of sub-par growth,” she says.
Of course everything isn’t bad. Ms. Pomboy claims that there’s a very good chance that investors will move away from various Treasurys, whose performance has been very strong this year, and begin buying debt and equities. She also feels investment-grade corporate debt look “much more attractive than stocks.”
In the longer term, Pomboy believes that consumption will drop as consumers try to shore up their balance sheets and rebuild shrunken savings accounts. She predict that will lead to annual gross-domestic-product growth in the neighborhood of just around 1%.
Ms. Pomboy has been quite bearish for a while on the housing market. “First, it was the incredible expansion in lending on housing,” she says. “I was also focused on the share of household income that was actually spendable money, and it was puzzling how consumers could sustain consumption when their income certainly wasn’t supportive of that.”
The problem is that consumers are unwilling or unable to borrow as much as they did previous to the credit crunch. So now the federal government is taking a proactive role as “the spender of last resort.”
Ms. Pomboy worries about how investors will be able to preserve their capital. And she frets about this vicious circle where “as consumers spend less, companies make less money, and they cut back workers,” she says. “The unemployment rate continues to rise. It is very hard to figure out how you break out of that.”
Source: barrons.com
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