The US is on the road to recovery with a positive business sentiment, improving corporate profits an...
The US is on the road to recovery with a positive business sentiment, improving corporate profits and an export market that is expected to pick up.
Tax cuts will be beneficial for consumer spending and the only concern is that the currency markets remain volatile, and the dollar drop further.
Andrew Milligan, head of global strategy at Standard Life, says the International Monetary Fund forecasts the US is set to have the best recovery money can buy. The Federal Reserve has been cutting interest rates and taxes to help encourage growth.
Standard Life is forecasting GDP to be at 4% for the third and fourth quarter this year. Interest rates are expected to remain low in the US.
Milligan says: "There has been a cyclical upturn following the Iraqi war and high oil prices. We expect the recovery to be lead by business sentiment and exports, rather than consumer spending. There has been a shift away from low-value added products to high-value added products such as IT and transport goods."
The US economy has been held up by the housing market and Milligan now thinks the recovery will be focused on business.
"Companies have been using their profits to reinvest back into the business. There has been a large number of mergers and other corporate activities taking place and companies are concentrating on shareholder value. They have got rid of areas that are not performing well and are focused on areas that will give the best returns," says Milligan.
According to Govett, there is still good news flowing from the US economy.
Knight says: "There seems to be a light at the end of the tunnel as several leading economic indicators flashed go signals in August - signalling economic growth might be stronger than previously estimated. Many economists are now predicting third and fourth quarter GDP US growth from 4.5% to 5%.
"The best news is that corporations are finally starting to increase capital spending and this is being reflected in the strong prices of IT shares.
"PC orders appear to be on the rise and new technology products such as digital cameras, high definition TVs and plasma TV screens will provide increased demand."
Prudential Equity Group is also positive on the US. Ed Yardeni, chief investment strategist at Prudential Equity Group, says: "The President's tax cuts should provide consumers with an extra $30bn during the final quarter of fiscal 2003, ending September. In the coming fiscal year, the windfall is estimated to be $88bn.
"During July, when the tax cuts were first implemented, personal taxes fell at an annual rate of $101bn to $988bn according to the Commerce Department's monthly Personal Income report.
"In July, government transfer payments included in personal income rose to a record $1,375bn at a seasonally adjusted annual rate. In other words, the government is propping up personal income by a record $387bn, which is the reason the federal budget deficit is expected to widen into record territory of at least $450bn over the coming fiscal year."
Prudential predicts real GDP growth rates of between 4% and 5% a quarter will be likely during the second half of this year and first half of next year.
Productivity continues to soar and unit labour costs continue to fall. Pricing may be weak, but labour-cost pressures are even weaker. Fast economic growth over the next four quarters is bound to boost productivity, depress unit labour costs, keep a lid on prices, and also boost profits.
There has also been higher industrial productivity, house building, consumer income growth and consumer spending, says Yardeni.
Retail sales have been strong and US car sales are running at an 18 million-unit annualised rate. Massive sales incentives are discounting car prices, and customers remain eager buyers.
However, Milligan warns the currency market is volatile and a low dollar may be detrimental for the economy, although a low dollar may be beneficial in order to increase employment and improve growth in the manufacturing area.
A sharp fall in the US dollar may not be beneficial for US trading partners. European and Asian investors will be less inclined to buy US securities if there is a sharp fall in the dollar.
Assist customers to get better deal
CIO Stephen Jones will take up UK duties on an interim basis
Expansion of Marcus
The Sunday Times continues SJP investigation - three things your clients may call you about this week …
What made financial headlines over the weekend?
They join the technical teams