The next three months will be integral in determining how long until the United States economy recovers on the back of consumer spending, according to an investment expert
Putnam Investments portfolio manager Paresh Upadhyaya said investors are evaluating how much American consumers have scaled back their spending.
“The US economy – we are kind of entering the most dangerous part and the riskiest part… to what extent does the consumer retrench?” .
“The consumer is being walloped in three different areas. They are seeing wealth destruction from falling equity prices and falling house prices, and from still high gas prices, from a year-on-year perspective.”
There is a real risk consumers may retrench further, and therefore economic recovery will take longer than expected, he said.
Consumer confidence fell to a record low in October, according to the US Conference Board. American employers have also eliminated 760,000 positions for the year to September.
This US recession could be in line with the economic situation of 1980 to 1982, Upadhyaya said. In that period, America was afflicted by stagflation – sluggish economic growth and rising inflation.
Upadhyaya has a bearish view on global growth for the next two quarters, but much of the gloomy economic news has been priced into investment markets.
Australia may see sub-trend growth and avoid a recession, due to the aggressive interest rate cuts by the Reserve Bank of Australia, Upadhyaya said.
The Federal Government’s $10.4 billion fiscal stimulus package and a banking situation not as severe as the US or Europe will also help the local economy.
