Julius Baer/Matthews

US economic data inspires cautious optimism

Economic data in the US suggests the economy could be turning the corner, but there is still plenty to worry about.

Economic indicators in the US are showing signs of recovery, despite the Federal Reserve’s unwillingness to take the steps needed to curtail the budget deficit, according to Julius Baer.

A household would never run its budget the way the US government does, said Mark Matthews, a managing director at the boutique private bank. If the US were a household with an annual family income of $21,700 (its gross domestic product), it would be spending $38,200 every year. Despite an outstanding credit card bill of $142,710, it is still adding new debt of $16,500 annually — and through painful efforts it recently achieved a budget cut of $385.

There has been some improvement in the jobless numbers, but unemployment has been above 9% for 28 months now. That is its longest slump since 1945.

But it is not all bad news. Third-quarter data in the US indicates an unexpected recovery and the numbers so far this quarter reveal a similar growth of roughly 2.5%, outperforming consensus expectations of 2%. Real GDP has surpassed pre-crisis levels and manufacturers’ new orders for durable goods have increased by 6% since the start of this year, and are up 32% since 2009. The MSCI USA Index, a benchmark for the performance of large- and mid-cap US stocks, has risen by 3.5% during the past 12 months, compared to a 13% decline in the MSCI Asia ex-Japan.

“In fact, US companies are doing better than analysts had thought, whereas [Asian] companies are doing poorer than our analysts had thought,” said Matthews, explaining why Asian markets are underperforming the US.

A third quantitative easing is unlikely, according to Julius Baer, given that the top four congressional Republicans sent a letter to Ben Bernanke, chairman of the Fed, questioning the effectiveness of the last stimulus in boosting economic growth and curbing unemployment.

“I am very cautiously optimistic by looking at the most recent data, for example the household survey,” said Matthews. Even the unemployment number now looks like it is starting to stabilise, he added.

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