Recovery will be stronger than consensus, says Barclays Capital chief U.S. economist

“U.S. economic growth is recovering robustly, receiving the usual cyclical boost from housing and inventories,” said Dean Maki, managing director and chief U.S. economist of Barclays Capital in his “U.S. Economic Outlook” presentation to the Boston Security Analysts Society (BSAS) on December 8. 

Maki said the U.S. economy will recover strongly, as it typically has done following past recessions. He disagreed with the many pundits who say “This time is different” and that the economic recovery will be drawn out because tight credit will keep consumer spending weak. Credit is always tight following a recession, Maki said. “In these strong [economic] recoveries of the past, we haven’t needed strong credit growth,” he added. 

Maki discussed the following drivers of strong economic growth:
•    Production is set to grow much faster than final demand.
•    Housing is starting to rise because of its greater affordability.
•    Business has cut too much during downturn, so companies must boost spending soon to grow profits.

Some predictions
•    Real GDP will hit 5% by the first quarter of 2010 and stay at or above 3% in 2010.
•    Unemployment has peaked and will fall to 9.1% by the fourth quarter of 2010.
•    Inflation–and the fed funds rate–will remain low. However, the Fed will raise rates in the second half of 2010.

A couple of unexpected developments could derail Maki’s predictions, he said. One is a sharp fall in the stock market. The other is a sharp rise in commodity/energy prices as a result of global economic growth. 

Do you agree with Maki’s predictions? Please comment.

If you’re a member of the BSAS LinkedIn group, you can join a conversation there about Maki’s talk.