1. QNB Economics
economics@qnb.com.qa
The US recovery sags but does not trigger stimulus spending
The optimism in the early part of the year that Job creation has slowed in recent months.
the US economy was rebounding has now faded, Only 69,000 net non-farm jobs were created in May,
according to QNB Group analysis, due to a series of the fourth month in which job creation has declined,
disappointing economic indicators. However, the compared to a recent peak of 275,000 in January.
picture does not currently seem to be gloomy enough Within this figure, the private sector created 82,000
to motivate further stimulus as evident in the latest jobs but the public sector shed 13,000.
decisions by the US Federal Reserve (the Fed). Over eight million net jobs were shed in 2008-
On June 20th, the Fed revised down its forecast 10 but, since employment started to recover in October
for real GDP growth in 2012 by half a percentage 2010, only about three million have been created to
point to within a range of 1.9%-2.4%. This came after replace them. This is why the unemployment rate is
growth slowed to 1.9%, on an annualised basis, in the still very high by historical standards.
first quarter the year. Although this rate of growth is A key measure of corporate activity, the
still healthy compared to Europe, which is undergoing purchasing managers’ index (PMI), came in at 53.5 in
recession, the US economy is not expected be able to May. This was slightly down on April, but still above
create sufficient jobs to substantially improve the the 50-point mark, which is seen as the dividing line
situation in the labour market. The Fed simultaneously between expansion and contraction.
revised up its year-end unemployment forecast to The benchmark consumer confidence index
8.1%, close to the current level of 8.2%, recorded at was also a little off its recent peak, at 64.9 in May, but
the end of May. this is still strong in comparison to recent years. A
different consumer confidence survey, produced by the
US Real GDP Growth (2009-2012) University of Michigan, had given a stronger reading,
(% change, annualised) putting confidence at a 5-year high in May, but its
3.9
June reading saw a sharp decline down to a six-month
3.8 3.8 low, more in line with other consumer measures.
Consumer confidence however is not yet
3.0 translating into improved retail sales, which were
down by 0.2% year-on-year in May. Falling petrol
2.5
2.3 prices, which brought annual inflation in May down to
1.9 a 16-month low of 1.7%, should now boost
1.8
1.7 consumers’ disposable incomes which might lead to
1.3 improved retail sales.
There is, however, a moderate ongoing
recovery in the housing market, as attractive prices and
0.4
low interest rates encourage home buyers. The number
of housing starts peaked in April, at a level that if
maintained for a year would be equivalent to 744,000
new houses, the highest level since October 2008,
-0.7 though still well below the average of nearly 2m in
-6.7 2005-06. Despite this moderate recovery, an overhang
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 of foreclosed properties continues to drag on the
09 10 11 12 housing market
Source: US Bureau of Economic Analysis & QNB Group analysis
The US economic outlook varies across
different elements of the economy. The government is
reducing its spending, as it seeks to narrow its budget
deficit, which reached 8.7% of GDP in 2011. In the
process it is reducing the public sector payroll.
Meanwhile, the corporate sector is growing and
creating jobs, although not at quite the rate economists
had hoped.
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2. QNB Economics
economics@qnb.com.qa
Key US Indicators (June 2011-May 2012) is nearing its permitted debt ceiling, requiring
Consumer confidence index 744 congressional approval for it to be raised. Furthermore,
80 750
Housing starts (’000, right axis)
in 2013 a series of tax rises and spending cuts that
75 708
were agreed in previous debt ceiling negotiations kick
72
700
in, which will be negative for GDP.
70 Despite these issues the US economy, it
continues to look somewhat robust in comparison to
65
650 many other developed countries, according to QNB
65
59 Group. This is reflected in stockmarket results. Despite
60
recent falls, US markets remain in positive territory for
600 the year, compared to losses in European markets. In
55 581
addition, the US dollar has remained strong against
50 other currencies, and continues to be seen as a safe
550 haven, given ongoing events in the Eurozone.
45 If the situation in Europe or emerging markets
were to deteriorate further and cause US growth to
41
40 500 trend significantly below the Fed’s forecast range, then
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May QNB Group expects that it would take further decisive
11 12
Source: US Bureau of Economic Analysis & QNB Group analysis action to support the economy. This would probably
entail a new round of quantitative easing in which it
Overall, the US economy is neither vibrant pumps extra money into the economy by buying
enough to address unemployment nor weak enough to additional bonds, instead of merely extending the
necessitate immediate government action. This is why maturity of its existing portfolio.
the Fed look a moderate approach at its June 20th
Meeting. It reaffirmed that it would keep its
benchmark interest rates near zero until 2015 and
extended an existing program termed “Operation
Twist”. This entails swapping short-term bonds for
long-term ones, bringing down long-term interest rates
and thereby encouraging borrowing and investment.
The central government’s room for manoeuvre
to borrow to boost the economy is limited, because it
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