- The U.S. economy remains weak and recorded an outright negative GDP for Q3 2008. Q4 looks set to be absolutely atrocious, and the same can be said for much of 2009.
- As economic woes deepen, credit conditions have begun to unclench slightly, with carious credit spreads beginning to narrow slightly. But several major risks and challenges remain, with the Fed and Treasury throwing a myriad of measures up against the wall to see what sticks.
- The scale of government intervention is such that bond supply concerns have become quite prominent, and are battling with a recent Fed commitment to keeping yields low for control over the longer-dated portion of the bond market.
- Housing will remain extremely soft, and the key indicator to watch remains prices. So long as prices are falling sharply, this is the kiss of death for both consumers and bank profits.
- Consumer spending is very weak as all three income channels – wages, wealth, and credit have broken.
- Business activity was not a central figure at the beginning of the slowdown, but it is now deteriorating rapidly as funding is hard to come by and as consumers retrench. Credit should fare poorly.
- Robust export growth should slow a little now that USD has perked up and the global economy slows.
- With inflation falling and the economy extremely weak, the Fed has slashed rates down to zero, and is now shifting gears towards quantitative easing. This brings with it the risk of inflation, though it is believed to be a low-probability event given economic problems. The Fed should keep rates flat for at least a year.
- USD is likely to begin ebbing now that repatriation of assets has slowed and flight-to-safety flows are beginning to diminish. The yield curve can flatten further from here.
The U.S. Economy in 2009
January 15th, 2009 · No Comments
Tags: United States US Economy
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