Monday, September 29, 2014

CNBC: While ECB Struggles. Fed Sees Recovery in US

This CNBC article pretty well sums up the consensus mainstream view right now. That view being that the US is seeing a pickup in its economy and a recovery that is gaining strength. Meanwhile, the Eurozone is fighting to stave off deflation. Below are a few quotes from the article and then a comment.


"On one side of the Atlantic they're trying to refill the punchbowl. On the other they're getting ready to take it away. This week, investors may get a clearer idea why."
"The European Central Bank will spell out on Thursday its latest attempt to steer the euro zone away from the prospect of damaging deflation, following the latest snapshot of consumer price pressures on Tuesday."
"The contrast between the U.S. and euro zone economies has grown increasingly stark, adding to the pressure on the ECB and European leaders to revive growth in their corner of the world."
"The risk of the euro zone sliding into deflation and deeper stagnation is adding to the drag on the global economy from a slowdown in China, where authorities are trying to rein in lending, and concerns about conflict in the Middle East."
"The U.S. economy looks to be on course for growth of about 2 or 2.5 percent this year, and the Federal Reserve intends to halt its bond-buying programme in October."
"As well as the jobs data, figures on consumer spending, manufacturing and trade are likely to show the U.S. recovery firmly on track."
"Even so, earnings have failed to respond much to the pick-up in jobs growth, something pointed out by Fed Chair Janet Yellen and which could delay a first rate hike."
"Goldman Sachs says that its number-crunching shows that growth in wages is becoming an increasingly reliable indicator of how much slack there is in the economy."
"Noting how earnings growth lagged behind inflation in the United States, the euro zone, Britain and Japan in the second quarter, the investment bank predicted central banks would take their time to start raising record-low interest rates with the Fed only doing so in the third quarter of next year."
My added comment: According to this article the US recovery is gaining strength and economic reports coming out soon will confirm that. If true, that will contradict Jim Rickards and others view that there is no recovery in progress and the Fed will have to concede this by early next year.
We should note that even this article expects only 2 to 2.5 per cent GDP which is not a strong number. Critics (like John Williams of believe the US GDP number is overstated. This article also points out how low wage growth in the US will cause the Fed to put off any attempt to raise interest rates until late in 2015. All of that hardly indicates that the US is in a strong recovery. 
Adding to that, it is clear from this article that global GDP is falling everywhere else and the concern remains more about deflation. The sanctions against Russia will continue to negatively impact GDP and the Eurozone will take a lot of that hit. The US cannot sustain whatever recovery it does have by itself because of the interconnected nature of the global economy. Also, rising interest rates could kill off any recovery very quickly.
So, we will have to wait until early next year at least to see if any real sustainable recovery is happening in the US. 

Added note: In response to this blog post a reader sent us a link to this Reuters article:

The reader also added this comment:  "And protests in Hong Kong are rattling the Chinese markets.  Could this be the beginning of a black swan?"
As always, we appreciate it when readers provide links to relevant articles. 

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