Research Dept. News
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Monthly Report, num 355 - March 2012
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International review - United States
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The United States: good but not good enough
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The United States picks up in the fourth quarter but the 2012 forecast is still 2.0%.
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The recovery is gaining in strength, supported by a labour market that is moving away from the gloomiest omens and by a fiscal policy that, 2012 being an electoral year, will be more expansionary than had been predicted. However, the growth we expect for the year as a whole is 2%, not enough for the United States to definitively avert the effects of the crisis.
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Growth is sustained by consumption growing more than income and the inventory cycle.
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Gross domestic product (GDP) picked up in the fourth quarter, growing by 0.7% quarter-on-quarter and 1.6% year-on-year, leaving the increase for 2011 as a whole at 1.7%. Despite this upswing, a quick look at the GDP components shows a less buoyant image than the one implied by the aggregate data. Firstly, because more than half this growth in absolute terms came from restocking, and this won't continue in the first half of 2012. Secondly, because the growth in private consumption, the main driving force behind activity in the second half of 2011, should drop off. Consumption's strength has been based more on a reduction in the savings rate, down from 5.0% to 3.5% of disposable income between June and November, than on any improvement in revenue, which only grew slightly. With household gross debt standing at 114,1% of disposable income, there is a limit to household consumer appetite and this was already noticed in December, when the savings rate picked up again to 4.0%.
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Retail sales point to a slowdown in private consumption.
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The slowdown in retail trade is a good sign of this greater thriftiness. The Christmas season was worse than the Thanksgiving campaign, in spite of a rise in consumer credit, while January's figures were disappointing. Trends in retail sales, without cars or petrol, grew by 2.4% year-on-year in real terms, barely half the rate of progress seen last July. Vehicle sales also dropped off in January, putting an end to a four-month run of rises. Consumer confidence showed a similar pattern in January, with a slight fall that put an end of two months of sharp increases and leaving the index clearly below its historical average.
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The labour market confirms its improvement with an unemployment rate of 8.3%, but there's still a long way to go.
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Households get 64.8% of their income from employment. In this respect, the labour market has recovered much better than expected, although this improvement is not leading to wage rises that boost income and it still has a very long way to go. 243,000 new jobs were created in January, taking the total number of jobs recovered since March 2010 to 3.2 million. But a further 5.6 million jobs still need to be created to make up for the jobs lost during the crisis. This means that, should January's good rate of growth continue, the process will take nearly two years. There are also 8 million under-employed people and a high proportion of long-term unemployed, who will hamper the recovery. Particular mention should be made of the unexpected improvement in the unemployment rate. Historically, unemployment would start to fall when GDP growth went above 2.5%. But January's unemployment rate stood at 8.3%, eight tenths of a percentage point below the level for the same period the previous year, in spite of the low growth, helped by a lower participation rate in the labour market. This means that idle resources were probably lower than expected and this has probably helped to reduce the unemployment rate.
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Housing improves but, weighed down by excess supply, it will be the sector that takes the longest to recover.
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Looking at investment, construction grew by 2.6% quarter-on-quarter but the housing sector has yet to come of the tunnel. New homes started in January came close to 700,000 in annual terms, an improvement and one that coincides with more optimistic developer sentiment, but surplus supply is hindering the recovery and prices are still falling. The administration and banks agreed that the latter would pass on 40 billion dollars of refinancing and a reduction in mortgage capital to households whose debt exceeds the value of their property. Sector demand should benefit but the amount is not enough as the aggregate debt of these households is 700 billion dollars more than the value of their homes.
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Capital goods investment and corporate earnings look buoyant but the outlook is one of a slowdown.
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For its part, capital goods investment slowed up in the fourth quarter. Investment will continue to grow in 2012 but it won't recover the strength seen in the third quarter. The business sentiment indices of the Institute of Supply Management (ISM) for manufacturing and services have gradually improved over the last few months, reaching 54.1 points in the case of manufacturing and 59.5 points for services, views that correspond with a rate of economic growth higher than 3.0%. This improvement in expectations is also in line with corporate earnings. Profits from non-financial firms produced in the United States rose by 11.6% year-on-year in the third quarter and went from 6.6% to 7.2% of gross domestic product (GDP) in the first nine months of 2011. However, this advance is expected to halve in the fourth quarter of 2011, so investment is unlikely to react upwardly.
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The CPI is up by 2.9% and core inflation by 2.3%. 2012 will see a somewhat smaller moderation than anticipated.
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The slowness of the recovery is making the Federal Reserve cautious. Inflation continues to postpone its expected moderation. The consumer price index (CPI) for January rose by 2.9% year-on-year, 3.0% in December, while core inflation, which excludes energy and food prices, rose by 2.3% year-on-year, somewhat more than expected, supported by rents attributed to housing, clothing and leisure. Lower unemployment and idle resources rates and persistently expensive oil might make inflation moderate more slowly than predicted. The Fed has therefore temporarily frozen its third round of quantitative easing. However, the risks of insufficient growth are still perceived as more serious than inflationary risks, as shown by the almost unanimous agreement to keep official interest rates at minimum levels until 2014.
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Fiscal policy for 2012, an electoral year, will be slightly more expansionary than expected.
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The other support for growth will come from fiscal policy. 2012 will be an electoral year and this will delay fiscal consolidation even more than expected, with a greater tendency for the two large parties to undertake expansionary policies. The public administration deficit, which is estimated at 9.6% of GDP in 2011, is unlikely to fall below 8.0% for 2012, with a public debt that should climb to 105% of GDP. The first sign of lax policy was the approval of the «mini-stimulus», the name given to the extension until 2012 of payroll tax cuts and jobless insurance. The first would represent 1,000 dollars of aid for families whose income is less than 50,000 dollars a year, which would suppose an additional government expenditure of 100 billion dollars
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The trend in the trade balance will be affected by the fortunes of Europe and oil prices.
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With regard to the foreign sector, the weakness in the US's main trading partners, particularly in Europe, and the recovery in domestic demand will increase the trade imbalance. The trade deficit for goods and services in December rose again to 48.8 billion dollars. There was a slight upswing in exports but this did not alter their tendency to slow up. In the short term, the trade deficit will continue to increase due to the US economy's greater growth but, with the contribution by oil and its derivatives being 55.2%, its trend is linked to the price of crude which is refusing to fall for the moment.
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