US econ­omy set for bet­ter times whether Obama or Rom­ney wins

The Pak Banker - - Front Page -

WASH­ING­TON

No mat­ter who wins the elec­tion to­mor­row, the econ­omy is on course to en­joy faster growth in the next four years as the head­winds that have held it back turn into tail­winds. Con­sumers are spend­ing more and sav­ing less af­ter re­duc­ing house­hold debt to the low­est since 2003. Home prices are re­bound­ing af­ter fall­ing more than 30 per­cent from their 2006 highs. And banks are in­creas­ing lend­ing af­ter boost­ing eq­uity cap­i­tal by more than $300 bil­lion since 2009.

“The die is cast for a much stronger re­cov­ery,” said Mark Zandi, chief econ­o­mist in West Chester, Penn­syl­va­nia, for Moody’s An­a­lyt­ics Inc. He sees growth this year and next at about 2 per­cent be­fore dou­bling to around 4 per­cent in both 2014 and 2015 as con­sump­tion, con­struc­tion and hir­ing all pick up.

The big pro­viso, ac­cord­ing to Zandi and Yale Univer­sity pro­fes­sor Ray Fair, is how the pres­i­dent-elect tack­les the task of shrink­ing the $1.1 tril­lion fed­eral-bud­get deficit. The Con­gres­sional Bud­get Of­fice has warned that the U.S. will suf­fer a re­ces­sion if more than $600 bil­lion in sched­uled gov­ern­ment- spend­ing re­duc­tions and tax in­creases — the so­called fis­cal cliff — take ef­fect next year.

“There are a lot of things that are pos­i­tive go­ing for­ward for the econ­omy,” Fair said. “Hope­fully, we can get a han­dle on the deficit” with­out drag­ging down growth too much.

While con­cern about the threat­ened fis­cal squeeze may hit gross do­mes­tic prod­uct this quar­ter and next, the ex­pan­sion should pick up strength by the mid­dle of 2013, said Eric Green, a Philadel­phia-based fund man­ager at Penn Cap­i­tal Man­age­ment Co. GDP “will sur­prise to the up­side,” said Green, whose firm man­ages $7.2 bil­lion. “We could grow at a 3 to 4 per­cent rate over the next cou­ple of years.”

Hir­ing in the U.S. in­creased more than fore­cast in Oc­to­ber as em­ploy­ers looked past slow­ing global growth and po­lit­i­cal grid­lock at home. In the last jobs re­port be­fore to­mor­row’s elec­tion, the La­bor Depart­ment said a net 171,000 work­ers were added to payrolls, beat­ing the 125,000 me­dian fore­cast of economists sur­veyed by Bloomberg.

Shares of man­u­fac­tur­ers, ma­te­ri­als pro­duc­ers and en­ergy and tech­nol­ogy com­pa­nies should rise as the ex­pan­sion gains speed, Green said. More “de­fen­sive” stocks that aren’t as af­fected by ris­ing de­mand, such as real-es­tate in­vest­ment trusts, health- care providers and con­sumer sta­ples, won’t per­form as well. The Stan­dard & Poor’s 500 In­dex is up about 12 per­cent this year.

The U.S. also should ben­e­fit next year from a re­bound in the rest of the world, ac­cord­ing to Green, es­pe­cially as China, the sec­ond-largest econ­omy, “seems to be bot­tom­ing out.”

Chi­nese man­u­fac­tur­ing ex­panded in Oc­to­ber for the first time in three months, ac­cord­ing to a pur­chas­ing man­agers’ in­dex com­piled by the gov­ern­ment. A sim­i­lar gauge from HSBC Hold­ings Plc and Markit Eco­nom­ics posted the big­gest gain since 2010.

While man­u­fac­tur­ing in the euro area con­tin­ues to con­tract, the re­gion “can’t be in a re­ces­sion for­ever,” said Allen Si­nai, chief ex­ec­u­tive of­fi­cer of De­ci­sion Eco­nom­ics Inc. in New York. Economists sur­veyed by Bloomberg see the 17-na­tion group ex­pand­ing 0.2 per­cent next year and 1.2 per­cent in 2014.

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