This Recovery Is Not Sustainable

A rebound in domestic demand is among the most important pillars of a sustainable recovery. Yet, although it looks like the worst of the recession in the United States is over, we think that a rising unemployment rate is likely to weaken household spending and temper an upturn in growth, stocks and commodities.

Indeed, since the downturn began in December 2007, the US economy has lost 6.5 million jobs, making it the biggest employment slump in the last eight decades. And it is widely expected that the job losses will continue throughout 2009 bringing the unemployment rate close to 10% by year-end 2010 hampering further the expenditure.

Moreover, several economic indicators point to weak consumption going forward. For example, consumer confidence fell more than forecast in July and retail sales were down 4.9 percent from year earlier in June.

Moreover, the prospect of a worsening economic situation is prompting many businessmen to save more money and invest less. Indeed, durable goods orders and car sales are far from pre-crash levels.

More importantly, the effect of a massive fiscal stimulus will eventually fade bringing spending further down. Adding to that higher taxes driven by fiscal pressure and we can forget about sustainable recovery for some time.

Disclosure: No positions

Comments

[Old Trader:]

Evidently, Mr. Market hasn't received the memo, judging by the pre-open futures.

Jul 30 09:17 AM

[EUARTE:]

The fading stimulus bill? Effective? What planet is this from? The Stimulus Law has had very little effect and will have little effect. It was a pork Law and has failed.

As for unemployment we know, even from good times, that the government(s) have always under reported the numbers. This has been and is political. The real numbers are not know but I think an educated guess is around 12%. The government's formula counts those they want and then leaves off those it wants to avoid.

Jul 30 09:37 AM

[Carlos Lam:]

I agree with your sentiments except for one: I think commodities are going to go higher on stronger demand from Asia. China and India alone have nearly 2.5 BILLION people whose living standards are increasing; these people are going to want electricity, oil, and food. Can there be bumps in the long-run? Yes. The fundamentals -- increasing demand + stagnant to lower supply -- are there, though.

Jul 30 10:08 AM

[msgtb:]

We are in a depression and we have made the same mistakes the brought the Japaneese the lost decade of the 90's. We have around ten years of up and down with no real recovery.

Good luck and good trading

Dave

Jul 30 10:30 AM

[ksmithdc:]

Agreed 1000% with Eurate. The whole stimulus thing was crap.

Jul 30 12:52 PM

[whidbey:]

I think you are on the right track:

the recovery stalls in the fall 09 and Congress scrambles to light the fire again. The fastest and poorest program yet.

The first stimulus was poorly designed and this next one will be too much liquidity - emergency or crash cash - with little regard for its impact on the 2010 impact of the first stimulus. Maybe a taste of inflation and then what??

Jul 30 06:36 PM

[banyon:]

I agree that the stimulus was wasteful, but what evidence is there that it failed? If anything the turnaround pretty much directly correlates with the introduction of the stimulus money doesn't it?

Also, to the author, it's my understanding that the majority of the stimulus money hasn't even been spent yet but just allocated.


On Jul 30 09:37 AM EUARTE wrote:

> The fading stimulus bill? Effective? What planet is this from? The
> Stimulus Law has had very little effect and will have little effect.
> It was a pork Law and has failed.
>
> As for unemployment we know, even from good times, that the government(s)
> have always under reported the numbers. This has been and is political.
> The real numbers are not know but I think an educated guess is around
> 12%. The government's formula counts those they want and then leaves
> off those it wants to avoid.

Jul 30 07:48 PM

[TCK:]

I think you have managed to contradict yourself in a very few sentences. How could the stimulus have been a success when the money has not been spent ?




On Jul 30 07:48 PM banyon wrote:

> I agree that the stimulus was wasteful, but what evidence is there
> that it failed? If anything the turnaround pretty much directly correlates
> with the introduction of the stimulus money doesn't it?
>
> Also, to the author, it's my understanding that the majority of the
> stimulus money hasn't even been spent yet but just allocated. <br/>

Jul 31 08:31 AM

[banyon:]

Questioning the author's conclusions doesn't require me to hold either position. They are simply questions. If either is true, however, it would tend to contradict the authors conclusions. I don't need both the be true.


On Jul 31 08:31 AM TCK wrote:

> I think you have managed to contradict yourself in a very few sentences.
> How could the stimulus have been a success when the money has not
> been spent ?
>
>

Jul 31 06:31 PM

[banyon:]

Also, both statements could be simultaneously true if all the stimulus money wasn't spent, but they didn't need all of it to generate the desired stimulative effect.


On Jul 31 08:31 AM TCK wrote:

> I think you have managed to contradict yourself in a very few sentences.
> How could the stimulus have been a success when the money has not
> been spent ?
>
>

Jul 31 06:32 PM