The U.S. economy will emerge from recession by growing more than 2 percent in the current and fourth quarters on a dramatic reversal in inventories, but growth next year will be tepid, a UCLA Anderson Forecast said on Wednesday…”The structural problem facing the economy is that you have wealth-impaired consumers that need to repair balance sheets and many need to repair balance sheets because they are facing retirement or education costs for children with less than they thought they had,” said David Shulman, a senior economist at the UCLA Anderson Forecast group.
So…looks like the economic forecasters – who never get it right except when they can follow an existing trend – are looking for the “new normal” to be about 2% rather than the 1 to 2% (average, say…1.5%) called for by the PIMCO guys and yet, far less than the 3 to 3.5% of the last few years. Let’s see, what has to change from last quarter? In rough figures, without government stimulus spending, we would have printed a -6% annualized growth rate for 2nd quarter. So, now the remaining government stimulus spending along with the inventory swing is supposed to kick us into the 2% growth level for the next 2 quarters. Inventory building in anticipation of a yet-to-come consumer spending rebound and continuing government spending. The government has no inclination to stop spending but will that spending result in a healthy consumer? A consumer who can eventually take the place of the government spending? You be the judge – but it’s certainly not a slam dunk for the consumer to bounce back the way it’s being anticipated.
Paul Jackson at Housingwire.com reports:
On the heels of the Treasury’s latest plan to work with private investors to purchase private-party RMBS, Fitch Ratings said Monday afternoon that it had revised its projected cumulative loss estimates for 2005-2007 vintage U.S. prime RMBS transactions — in other words, more downgrades are coming.
Why defaults are surging among prime borrowers has less to do with the mortgage instrument, as was the case early in the mortgage crisis, than with more traditional risk factors tied to declining property values and rising unemployment. For example, Fitch said it found that loans with multiple risk attributes such as limited income documentation and second-liens, are defaulting at rates approximately three times that of loans without those characteristics.
Negative equity, too, is a still-emerging problem: borrowers with negative equity in some recent vintage mortgage pools are approaching 50 percent, the rating agency said. Borrowers with no remaining equity are defaulting at a rate three times greater than their equity-holding counterparts.
Continuing deterioration in what used to be prime credit means the assets Giethner’s plan is aimed at removing from banks are growing faster than PIMCO can say, “We intend to participate and do our part to serve clients as well as promote economic recoveryâ€.
