Quick US Economic Turnaround?

The prevailing view is the US Economy is in deep trouble, in recession and even in depression according to some observers. Also it will take at least a year or even several years to turnaround. Based upon today’s data there is much to support this view.

In a previous Allan’s Take I pointed out that watching the corrugated box industry often portends any economy’s future direction. I said the turnaround could be over a year but the key was to watch the purchase of corrugated box making equipment and the boxes themselves.No this indicator has not turned yet but I suspect it will turn by next spring, well before most pundants proscribe today. Why? Read on….

Job destruction is the leading reason waved indicative of impending economic doom. If you look at the 9 million jobs lost this year and 27,000 job cuts across large enterprise just last week it is sobering.

Consumer income declined over recent years along with the largest dive in consumer outlook in US history are also cited as indicators of an extended recession as consumer spending is the key driver of the US economy.

Allan’s Take Counterpoints:

1. President Obama is seen by most American’s and many non-Americans across the planet as a huge refreshing Ocean breeze. Tomorrow nearly ALL economic & political problems will be wrapped up into a big package labeled, BUSH, and shipped off to the PAST.

2. Americans are the most CAN DO people in the world. Living here in Florida you can feel the national energy growing, an excitement and enthusiasm gathering steam.

3. World governments are throwing everything they can think of to resolving every economic/financial issue. They will win. They have the ability to infuse huge amounts of money, to print money at will, to change regulatory, tax and other policies. They will win. I can’t say that line enough. The US has taken the lead on these initiatives and President Obama is a strong advocate of active government. The result more government interventions. The Bank of England is reducing interest to 1%, consider the rate has never been below 2% over the past 400 years!

4. Job destruction is mitigated by all the employment that is off books. There are millions of people making part and fulltime incomes on eBay among many other off book mechanisms. The level of trade and barter has been increasing for decades. The evidence of this is all around us.

When I lived in Belgium the National Bank of Belgium hired me and I was given a large binder of Belgium economic data showing all the unemployed and all the negative economic figures. Yet as I traveled the country I rarely saw any vagrant people. The shops seemed to be filled, the economy seemed to be robust. The explanation I was given was that some 20-25% of the Belgium economy was grey & black. I was surprised. I knew that South American countries had large black economies but I assumed Europe was different.

The world’s black and grey economy is huge. The best estimates indicate it approaches 30-35% of the global economy. Thus, you must take into account there is a lot of money driving the global economy coming from work done by people withOUT jobs or least those jobs on the books.

5. Consumer income has actually been increasing NOT declining for decades.

• While reported wages have fallen 4% from 1975 to 2005 benefits like health insurance, pensions and paid leave have risen so that median wages rose 28% during the same period.
• Households have gotten smaller during the same period so that wages actually rose 44%.
• When you add in other types of income like eBay and barter US families are doing quite well thank you very much. When I lived in Sweden I was told by the King of Sweden, “Allan, we Swedes like to complain a lot but we live well as you can see.” We were both sitting in a sauna in Hellsingland.

The US markets were up 3% today, Election Day. This is the highest rise on any election day in US history. Never underestimate the ticker tape. Meaning the equity markets very, very often anticipate future economic activity and the markets seem to believe businesses will do well and make strong earnings. Allan’s take forecasts a surprisingly quick US Economic turnaround—mid 2009.

For Allan’s Take on Investments & Timing Click.

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This entry was posted on Wednesday, November 5th, 2008 at 6:14 pm and is filed under Global Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.