The US economy is in recession and although consumer confidence has improved slightly, unemployment ...
The US economy is in recession and although consumer confidence has improved slightly, unemployment still remains high and some analysts are concerned about inflation and deflation of the economy.
Fred Alger, chairman and president of Fred Alger Management, says the US economy may not be as deep in recession as first predicted. However, the signals are mixed.
Zero-interest financing has seen record car sales in October and early November in the US, states Alger. Existing home sales were up 5.5% in October compared to September 2001 and 2% above the number sold in October 2000.
Alger notes that recent surveys show consumer confidence has picked up slightly. Although these surveys show consumer confidence is still low, they have improved slightly indicating that the US may be on the rebound.
For example, the University of Michigan Consumer Sentiment Survey rose slightly to 83.9 from 82.7 in October. The ABC News/Money Magazine Comfort Index, although low, rose to -2 for the last week of November compared to -5 for the most of November.
However, Alger warns that consumers are still being cautious because of uncertain times and have cut back on spending. In November, the savings rate jumped from less than 1% to almost 5%.
GDP is continuing to decline and contracted to 0.4% in the third quarter. However, Alger says this figure was compiled before the attacks on the World Trade Center and when this is taken into account, it is likely the final figure will be close to a 1% decline.
Alger says the US unemployment rate rose sharply in October to a rate of 5.4% from 4.9% in September and job losses have been estimated at 415,000, which is the largest number since 1980.
Kevin Boscher, director at Collins Stewart Asset Management, says: 'From an economic viewpoint, the intensity is growing in the battle between the forces of reflation and deflation. The announcement by the US Treasury to halt the issuance of 30-year treasuries may have been a very clever way to add more policy stimulus to the system, as it has had the effect of flattening the yield curve and forcing long-term interest rates lower.'
Collins Stewart Asset Management's point of view is that the urgency of the US policy reflation reflects a wide range of factors that the policy leaders are worried about, primarily that the economy has sunk into recession and US consumer confidence has collapsed.
However, Boscher says the good news is that the US authorities backed up by the UK and, reluctantly, Europe, are pulling on all the strings to prevent a disastrous deflationary spiral. Interest rates have been cut to very low levels, and the US fiscal stimulus will amount to at least 1.5% of GDP next year.
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