September 24, 2014

US economy weak and troubles brewing

According to Doug Kass recent post on TheStreet, the following are the reasons Doug Kass believes the US economy fundamentals are weaker than most people believe.

• Away from the U.S., economic activity is weakening. Italy, France, Spain, Russia and Japan are in recession. European real gross domestic product growth is perilously close to zero and a Japanese-style deflation is threatening the region. China's economic growth is decelerating.

• The European Central Bank faces the challenge of structural issues. The ECB may be running out of gimmicks and could be unable to spur growth in the quarters ahead. 

• Geopolitical pressures are rising outside of the U.S. The Russian-Ukraine military confrontation is pressuring trade and economic growth.

• Housing activity continues to pause, and its foundation is fragile. Increased bank-capital requirements -- above those demanded under international banking regulations -- will further pressure the U.S. housing market and could tighten lending standards.

• The automobile industry is exhibiting signs of peaking. Inventory supplies are high and increasing, and aggressive incentives are being offered by car dealers and manufactures.

• A strengthening U.S. dollar is dulling our economy's prospects by hobbling U.S. export growth.

• Domestic growth remains sub-par and at "escape velocity," and sustainable growth still seems in question. With the 2014 results, the Federal Reserve itself has missed its U.S. economic growth forecasts for the fifth consecutive year.

• Inflation continues to run below the Fed's projections, and, with the U.S. dollar strengthening and commodities collapsing in recent months, measured inflation is likely to continue lower.

• Personal consumption expenditures, in particular, look to be weakening. Payroll growth has fallen for the past three months, spending fell in July and August, and the "screwflation of the middle class" has persisted. The recent rise in the price of oil could likewise inhibit retail activity.