The U.S. economy will slip back into recession in the second and third quarter of 2010 as the boost from fiscal stimulus measures and inventory rebuilding wears off, James Shugg, senior economist at Westpac Bank, this morning.
"In the second half of this year, starting [even as early as] the second quarter, a bit of a mismatch is going to take place," Shugg said. Note: I don't think we will even make it to Q2 without problems. The stock market is the key and I don't think it can sustain these levels.
Shugg went on to say, "You'll see the boost to growth from fiscal stimulus and inventory rebuilding lose momentum and what's left? A consumer that's still inclined to save more than spend, a banking system still dragged down by one in four mortgages being in default."
Of course, and Shugg doesn't get this, a consumer that is still inclined to save is a good thing for the economy. It boosts money flows where it is desperately needed, in the capital goods sector. But, I continue to contend that what is going is an extreme demand to hold cash, not a desire to invest long-term. This is why housing prices continue to fall, as are many commodities. The money is not out there bidding up capital goods.
As for the fiscal stimulus, that was always hocus pocus with never any discussion of where the money was drained from to boost the flow of money to Obama's favored sectors. Expect more of this hocus pocus down the road, with higher taxes which will do nothing but suffocate the real economy.
As far as employment Shuug said, "In the U.S. we haven't yet seen jobs growth take place, in fact we're a little bit skeptical about the (December) U.S. payrolls number because our sense is that most U.S. labor market indicators are pointing to jobs still being shed at a milder pace, but not actually being put on."
He's correct on this.
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