Following poor economic growth of 0.2% annualised gross domestic product (GDP) for the first quarter, the US seems set on a path to eventually reintroduce more quantitative easing (QE).
This is the view of Albert Edwards, global strategist at Society Generale, who in a note out today, said: “The first quarter US GDP data was a major disappointment to the market as business investment declined due to the intensifying US profits recession. Only the biggest inventory build in history stopped the economy subsiding into a recessionary quagmire. The US economy is struggling and the Fed will ultimately re-engage the QE spigot.”
Edwards explained: “…without the unprecedented rise in first quarter inventories, GDP would rather have declined by some 2½%! But we could see there was an inventory problem already from the monthly business (manufacturing and trade) sales and inventory data. Sales are declining on a year-on year basis, but we are assured this is due to the cold weather. But if it is not, and sales do not surge in coming months, then the economy is heading into recession as the inventory sales ratio has now reached levels that will necessitate savage cutbacks in production.
The well known ‘bear’, or realist to those who don’t have a vested in being bullish, expressed disbelief that, “ almost 100% of investors believe the US economy is at the start of an economic recovery, despite this one already being six years old. Maybe the weak first quarter US GDP data will shatter this over-confidence.”
Though markets may have been disappointed, Edwards has long warned that all is not well with the US economy.
Equity Release to Economy
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