US economy needs boost to avoid fall into deflation

The US economy is unlikely to grow fast enough to satisfy the market's expectations for rising profits and an end to deflation, according to Andrew Smithers, analyst at Smithers & Co. Smithers bases this on an expectation that fiscal stimulus will be offset by rises in the external current account deficit and the household savings rate. Added to this, he says, profit growth is likely to be weaker than normal in a recovery due to the fact 40% of profits now come from the financial sector. To avoid corporate cashflow falling, Smithers says, the US budget deficit will need to increase ...