US - A strong US recovery fuelled by easy liquidity and low short-term interest rates is just around the corner, according to Invesco's latest economic review.
The Dow Jones Industrial Average is up about 21% while the Nasdaq is up 43% since their lows on September 21.
Invesco says there have been several items of economic data released that are potentially bullish for the economy: “[For example] ... the NAPM Purchasing Managers’ Index for November jumped almost 5 points from 39.8 to 44.5. While still below the 50 level which indicates an overall expansion, this was nevertheless well above the median expectation of 42.0. On the same day construction spending data for October showed an increase of 1.9%, and personal spending in October rose 2.9%.”
However, Invesco asserts that some bullish data releases are “simply a bounce-back or partial recovery” after September 11 and at least equally counter-balanced by a range of weak economic data during the past week or two. Initial unemployment claims released on December 6 at 475,000 were 19,000 higher than the median expected figure of 456,000 and unemployment rose to 5.7%, slightly higher than the 5.6% that had been widely expected.
Invesco concludes: “Despite ample injections of liquidity as a result of the rapid lowering of the Fed Funds rate during the year, there are still many signs that the economy is being held back by unusually weak nominal demand.
“The overriding fact is that neither the consumer nor corporate America has yet fully reduced the financial leverage or the capacity overhang that have resulted from several years of strong capital spending. An additional factor likely to keep spending subdued in the months ahead is the reduction in variable pay packets – whether overtime cutbacks, or bonuses or inability to exercise options.
* In its Market Prospectus for 2002, Ashmore Investment Management said the global environment going into the New Year remained “uncertain” but the most likely scenario “is that the US economy leads G3 economic recovery in the second half of the year.”
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