Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
US Overdosing on Debt - 19th Mar 19 -
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

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

6 Critical Money Making Rules