Consumer sentiment remains jittery in United States

The Crédito y Caucións outlook is for tepid growth as the USA moves forward. Structural issues arising from the collapse of the residential housing market still persist.
Analisis Credito y Caución
Madrid - 27-dez-2010

According to advance estimates by the US Bureau of Economic Analysis, real GDP grew 2% on the previous quarter in Q3 of 2010, compared to 1.7% in Q2. The main drivers of growth were an increase in consumer spending, private inventory investment, non-residential fixed investment, federal government spending and exports.

From a consumer spending perspective, the third quarter encompasses the back to school´ retail season which traditionally delivers some stimulus, while business investment in private inventories amounted to US$ 115.5 billion.

However, concern remains that much of the current demand is being met by imported products: a worrying trend for domestic manufacturers. According to BEA, the trade deficit increased again in August 2010 to US$ 46.3 billion. Until demand for domestic products and services increases, the likelihood of a meaningful reduction in unemployment, currently at 9.6%, is some way off. Many economic observers think that, to tackle the high unemployment rate, a quarterly GDP growth rate in the region of 3.5% is required and that rate of expansion is unlikely to be seen before the second half of 2011.

So, the outlook is for tepid growth as the USA moves forward. Structural issues arising from the collapse of the residential housing market still persist and, while consumer spending did increase in Q3, the paradoxical nature of consumer behaviour is displayed in the October measurement of consumer confidence, which shows greater anxiety. With 14.8 million unemployed, and little relief in terms of a housing market recovery in the short-term, US consumers remain understandably anxious. Their concerns were certainly manifested in the shift back to the Republican Party during the November congressional elections a clear vote of no confidence in the policies employed so far to convincingly tackle the countrys economic problems.

The administration pursues an export-led recovery

A second round of federal stimulus, or quantitative easing [QE2], has been announced. Essentially this means that the US Federal Reserve will repurchase holdings of US government securities from banks, injecting more money into circulation in the hope that this will encourage banks to adopt more expansive lending attitudes to struggling businesses and potential home buyers.

The initial round of quantitative easing did little to convince smaller banks to relax their lending policies especially those banks that saw their corporate real-estate loan portfolios turn sour. So Crédito y Caución will monitor with interest the effects of this round of quantitative easing particularly to see if it has a positive impact on bank lending attitudes.

A by-product of the combination of an inflow of money into the system and low interest rates will be a US$ depreciation. With the Obama administration promoting the need to export as an engine for economic recovery, some more critical observers take issue with QE2, seeing it as an unfair way to make US exports more competitive on the back of a weaker dollar. This attitude is held most vociferously by Germany and China, though somewhat ironically given Germanys acceleration of exports, creating detrimental trade imbalances for its European Union neighbours, and Chinas aggressive purchase of US treasury bonds, which served to calibrate the Yuan favourably against the US$.

While such views could potentially lead to a reaction in the form of the imposition of tariffs and tit-for-tat trade restrictions, there is a clear intent by the Obama administration to optimize the opportunities for US exporters. This strategy is seen as a relatively short-term ploy to address the high rates of local unemployment while re-booting US manufacturing: effectively so that a boost in exports can serve as a major stimulus for a broader US economic rebound. Asia has been targeted as a major US export destination and, in advance of the G20 summit, Obama has visited India, Indonesia and South Korea to foster and establish trade agreements.

Atradius Group has itself entered an arrangement with Export-Import [Ex-Im] Bank to provide trade credit insurance solutions for small and medium sized exporters that have struggled to obtain short-term credit insurance since the financial crisis of 2008 / 2009.

It remains to be seen what levels of economic traction will be achieved by the QE2 stimulus plan. However, Crédito y Caución thinks that, on both fronts, there are considerable attitudinal obstacles to overcome. Locally, there is a considerable challenge of overcoming the banks ingrained restrictive lending attitudes while, as for exports, there is real potential for trade partners to take protectionist measures.

Mantenha-se informado. Receba a nossa Newsletter