Research Dept. News
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Monthly Report, num 354 - February 2012
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International review - United States
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The United States: better and with a modest 2012
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The United States grows by 0.7% in the fourth quarter.
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The US economy is consolidating its recovery and stands at the head of the advanced economies. As this report goes to press, the Department of Trade announced that growth in gross domestic product (GDP) for the fourth quarter picked up to 0.7% quarter-on-quarter, 1.6% year-on-year, leaving the growth figure for the whole of 2011 at 1.7%. This consolidation is supported by an improved labour market, which is exceeding the expectations held just two months ago and has contributed greatly to the improvement in the sentiment of consumers, who account for 71.0% of GDP. But consolidation does not mean abundance. The strength of the fourth quarter, based on a low savings rate and an upward cycle of stock, should give way to growth with a more modest tone. The advance for the whole of 2012 is therefore unlikely to exceed 2.0%. There are various reasons for this low profile. Most importantly, household income continues to increase unhurriedly, so that consumer spending should return to the fold in the first quarter of 2012.
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The deleveraging of household debt will also continue, whose gross debt stood at 114.1% of disposable income in the third quarter of 2011, lower than the peak of 129.9% of September 2007 but still above the range of 90-100 for the long-term trend. The cost of oil, whose price is refusing to fall, won't help to relieve consumer budgets either. Thirdly, Europe's debt crisis will also be a burden on growth by deteriorating the trade balance and financial conditions. Lastly, fiscal expansion, which supported activity in 2010 and 2011, will continue to lose steam due to the levels of debt reached. But the possible approval, in February, of an extension to the tax exemptions for contributions paid by companies for their employees and in unemployment insurance will help to underpin a growth that still needs some assistance.
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For 2012, advances will moderate due to stagnation in revenue and the European crisis.
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The latest indicators for economic activity show the upswing in private consumption slowing down. The first sign of this came from national accounts. Household income came to a standstill in November at the same time as private consumption grew by a meagre 0.1% compared with October. With this, the savings rate fell to 3.5% of disposable income, the lowest level since December 2007. The Christmas campaign was also worse than Thanksgiving, with retail sales without cars or petrol falling by 0.1% in December compared with November's figures. On the plus side for consumption, the incipient improvement in the labour market continues to encourage more optimistic sentiment among consumers. The Conference Board Consumer Confidence index advanced in December to 64.5 points, the highest since April 2011 and far above the 40.9 points of October, although it's true that today's level is still more typical of recession than expansion.
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The labour market improves, with unemployment down to 8.5% and under-employment falling.
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Beyond the ups and downs of private consumption, the labour market is where the most significant improvement is taking place in the economy. The true measure of how 2012 will turn out will be whether employment continues to improve. The unemployment rate fell again in December, ending the year at 8.5%, a level clearly lower than the one expected in summer. Although this drop in unemployment is partly due to a reduction in the labour force, 1.64 million net jobs were created in 2011 and more than two million since the start of the recovery. The rapid drop in under-employment is also significant; i.e. those workers who are working part-time involuntarily, which went from 9.1 million in September to ending the year slightly below 8 million, the lowest since January 2009. The rise in the number of hours worked, a leading indicator of the fall in under-employment, also rose slightly, suggesting this trend will continue. Nonetheless, the job market still has a long way to go before it recovers completely. The jobs created in 22 months of recovery represent just 30.3% of the 8.75 million jobs lost during the crisis, while the purchasing power of wages ended 2011 below the level reached at the end of 2010.
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Business sentiment is in line with growth slightly above 2%.
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The business climate is in line with this situation of growth that, although moderate, is becoming firmer. The business sentiment indices of the Institute of Supply Management (ISM) for manufacturers and services continued to improve, although still not far from the reference level of 50 points. The respective levels of 53.9 points in manufacturers and 56.2 in services are typical of relatively modest growth, close to 2.5%. Industrial production, which livened up a little in December, is enjoying a slight recovery that is somewhat more robust than the one in 2002-2007 but far below the boom in the 1990s. With a similar profile, industrial capacity utilization continued to improve up to 78.1%, although this also reveals that a large amount of resources are still idle.
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Housing prices almost touch bottom but their recovery will have to wait until 2013.
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The oversupply that is still affecting the housing market is stopping it from reaping the benefits of this incipient improvement in the job market. The price of real estate is close to bottoming out. The relationship between median housing prices and household income shows a return to normality, so that real estate prices can be considered as reasonable. However, it's one thing to be close to bottoming out but a very different thing to move away from this bottom. Surplus supply and credit conditions are hindering recovery. The Case-Shiller index for second-hand housing continued to slide downwards in October, while new homes started in December, at a lower level than half the average for the period 1995-2000, prior to the bubble, disappointed by falling compared to November. Even if the unemployment rate continues to fall throughout 2012, which should eventually result in a fall in non-performing loans and, consequently, in the surplus supply of housing, we are unlikely to see any signs of improvement in the sector before 2013.
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For its part, inflation continues to fall slightly due to the persistent low utilization of production resources. This trend should become sharper over the coming months due to the base effects of oil prices that, should they remain at their present level, will go from year-on-year increases of 28.0% and 16.9% in November and December 2011, respectively, to a drop of close to 5% in March 2012. This should curb the rise in the consumer price index (CPI). This process has already started, with December's CPI rising by 3.0% compared with 3.4% in November. Similarly core inflation, which excludes energy and food prices, also rose by 2.2% year-on-year. But the trend is downwards, with an end to the boost provided by imputed rent and the upswing in durables due to the effects of Japan's tsunami. All this leaves space for new expansionary policies by the Federal Reserve in the case of a decline in demand's growth.
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The trade deficit widens due to a decline in exports.
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In the foreign sector, the correction in the trade imbalance has halted due to a slowdown in world demand. The trade balance for goods and services in November was 47.8 billion dollars, 10.4% above the figure for October. This deterioration was mainly due to the drop in exports, down for the second month in a row. Weak global demand will mean that, in 2012, the foreign sector's contribution to growth will be negative, or zero in the best case scenario. Growth will therefore have to depend on domestic demand, which will look for support from the confirmation of recovery in employment.
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