Capital Economics out today with a thorough, frank and reasoned report on the US economic outlook, taking a look at a host of areas like consumption, investment, external demand, labor market, prices and monetary & fiscal policy. The upshot? Recovery is “likely to remain muted for years to come.”
Let that sink in for a minute. For years to come. Doesn’t seem as if investors have really wrapped their heads around that concept, but the firm builds a pretty compelling case, in straight-forward terms. For example, this simple point:
The fundamental obstacle preventing a return to stronger economic growth is the damage done to the balance sheets of households and financial institutions by the housing bust and
the related financial crisis.
Household deleveraging is “still in its infancy,” the firm says, noting that since the start of 2008, household debt has fallen $470 billion, but half that decline has come because of defaults, not from folks paying off their debt. “Overall, the downward pressures on real incomes and the structural problems caused by high debt and lower asset prices mean that households will not be able to spend freely for at least the next two years.” Continue reading…