Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21
Bitcoin Halvings Price Forecast and Stock to Flow Analysis - 18th Jul 21
Dell S3220DGF Unboxing and Stand Assembly - 32 Inch 165hz Curved Gaming Monitor Amazon Discount - 18th Jul 21
What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand? - 18th Jul 21
Will the US stock market’s worsening breadth matter? - 18th Jul 21
Bitcoin Halving's Price Projection Forecasts Trend Trajectory - 18th Jul 21
Dell S3220DGF Price CRASH to £305! 32 Inch 165hz Curved Gaming Monitor Amazon Bargain - 16th Jul 21
Google, Amazon and Netflix are Scrambling For This Rare Gas - 16th Jul 21
Sheffield Millhouses Park New Children's Play Area July 2021 Vs Old Play Area - Better or Worse? - 16th Jul 21
Inflation Soars, Powell Remains Unmoved. What about Gold? - 16th Jul 21
Goldrunner: Gold Could Jump To $1,900-$2,100 In Next 30 days – Here’s Why - 15th Jul 21
Tips For Finding The Right Influencers - 15th Jul 21
ECB Changed Monetary Strategy. Will It Alter Gold’s Course? - 15th Jul 21
NASA And Big Tech Are Facing Off Over This Rare Gas - 15th Jul 21
Will the U.S. Dollar Lose Momentum In the Second Half of 2021? - 15th Jul 21
Bitcoin Stock to Flow Model Forecasts Infinity and Beyond! - 14th Jul 21
Proteomics: The Next Truly Massive Investing Opportunity - 14th Jul 21
Massive Solar Storm to Hit Earth 2025, Coronal Mass Ejection (CME) Danger and Protection Solutions - 14th Jul 21
Is This The Best Way To Play The Coming Helium Boom? - 14th Jul 21
Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown - 14th Jul 21
How NFTs Are Shaking Up Arts Trading - 14th Jul 21
Gold: High Time to Move Out of the Penthouse - 13th Jul 21
Climb Aboard! Silver Should Run Up To $38 In Next 30 Days - 13th Jul 21
How Will Remote Work Impact the U.K. economy? - 13th Jul 21
Why Helium Stocks Are Set To Soar in 2021 - 13th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US economy heads for a hard landing in 2007

Economics / Analysis & Strategy Nov 21, 2006 - 01:01 AM GMT

By: Nadeem_Walayat

Economics

Economists and many market participants continue to mistakenly point to lagging indicators in support of economic growth during 2007 i.e. a panel of 50 economists in a survey released by the National Association for Business Economics predicted that the overall economy, as measured by the GDP, would expand by 2.5 percent in 2007. Unfortunately many of the indicators such as US unemployment hitting a low of 4.7% are lagging indicators. Virtually every recession during the past 50 years was preceded by a low jobless reading.

US economy heads for a hard landing in 2007


Other signs of the coming slowdown, are in the housing market, as our last article pointed out (US Housing slump continues as housing starts plunge 27%), where there is no sign to a halt in the markets decline. This has yet to impact on the consumer, which comprises more than 70% of US economic activity, and will show itself in lower company earnings growth numbers during 2007. Consumers are saddled with record amount total outstanding household debt, which has grown from $6 trillions to a record of over $12 trillions in a little over 6 years. Much of this debt is on the back of the housing boom in the from of equity withdrawal for consumption, now that the housing market is falling, equity withdrawals are expected to slump during 2007.

Unlike in 2001, the US is not in the position to to cut taxes or increase spending, due to the large twin deficits hitting record levels. US national debt continues to grow at the rate of $1.6 billions per day, and will demand interest payments of some $220 billions for 2006, which leaves little room for government expenditure to soften the hard landing. On top of this the misguided war in Iraq continues to consume $10 billions per month, which further reduces the options available during 2007.

What are the consequences of a hard landing during 2007 ?
US companies despite generally being in a healthy position cash flow wise, will lay off workers and cut prices of goods and services in the face of weakening demand from the US consumer. This in effect will have a deflationary effect and thus the inflation worries experienced for much of 2006, will be replaced by deflationary worries. This will lead to the Federal Reserve cutting interest rates by as much as 100 basis points by the end of 2007, and a rally in the US bond market can be expected.,

The commodity markets may also initially suffer, but their growth in the longer term depends on continued expansion of the Chinease and Indian economies, so if the lower interest rates start to stimulate the US economy these markets may rebound strongly higher.

Sectors of the economy that are likely to perform well during the period of slow growth are defensive stocks such as Utilities, and Large oil companies despite the weakening oil price are likely to out perform the market. But as a whole the Stock Market is expected to decline, depending on the degree of slowdown in the US economy and reduction in profits growth. The sectors to avoid are growth stocks and banking as bad debts come home to roost during 2007.

The US Stock Market at the moment is trading on a PE of 15, unlike the the PE of 25 during early 2000, the market is not overly expensive, nor is it cheap, so at best the stock market could move sideways during the slowdown, and at worst could correct 20%.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments


23 Nov 06, 09:19
Re: Arms reset during 2007

stupid!!! stupid!!! stupid!!! whatever happened to common sense/ there ain't no free ride folks!!!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in