Sánchez reitera limite de 2,1% do PIB em Defesa. Trump ameaça Espanha com tarifas

[Surfer]

The firm stock market and better data for the U.S. economy have brought sunny optimism to the commentaries of U.S. economists.
J P Morgan, an investment bank, writes the following in its latest U.S. Weekly Prospects: "The upturn in economic growth is proving to be even more powerful than had been appreciated. Judging by the latest round of economic releases, real GDP growth for Q2 is likely to be revised up to 3.0 percent...and there are upside risks to the forecast of 4.5 percent growth for Q3."

"Upside risks to the forecast." Painful stuff. But what J P Morgan means is that its own forecast for annualized U.S. GDP growth in the third quarter of this year may need to be revised upwards from the already good speed of 4.5 percent.

J P Morgan's view on the United States ties in with a more bullish view than previously of the world economy. In an article entitled "No power outage for the global recovery," it writes, "the impressive turn in both the U.S. and Japanese data flow since May is telling. U.S. household spending is in the midst of a bounce, which has pushed estimates of domestic final sales gains for the second and third quarters to 5.0 percent and 4.2 percent, respectively."

But will this "bounce" be sustained? That, surely, is the question; one which J P Morgan's economists do not address in their weekly.

Banc of America Securities also writes in praise of the data in its weekly on the U.S. economy: "Last week's retail sales release was the strongest piece of evidence yet that the U.S. expansion is reaccelerating this quarter. The broad based gains in July sales, with ex-auto and gasoline sales rising 0.7%, together with last month's pickup in vehicle sales, point to a continued acceleration in consumer spending this quarter... we now project 3.9 percent annualized GDP growth this quarter."

Thus, Bank of America's securities' wing shares in the celebration of current data, though it does not raise its growth forecast as high as the 4 percent to which J P Morgan sees "upside risks."

But, more interestingly, Bank of America does give some thought to the question of sustainability: "Some observers believe that the rise above 4 percent spending growth this quarter is the beginning of a longer-term trend -- and such an outcome is possible."

There is clearly a "but" coming. Here it is: "But as we have cautioned earlier, the unusual strength of durable spending throughout the recent slump suggests that higher market interest rates may cool that relatively interest-sensitive portion of consumption."

And, Bank of America also points to one of the phenomena helping to create "the current surge," as it puts it, "the initial flurry of spending in reaction to the checks currently being issued by the U.S. Treasury accompanying new tax provisions."

Therefore the bank warns that "When the checks stop coming, spending momentum may subside. We expect moderate 3.25% - 3.5% real consumer spending growth over the next couple of years, sufficient to build a healthy economic recovery, but we continue to believe that a near-term return to well above-trend GDP growth may not be in the cards."

A positive but more cautious view, then.

We might point to another factor driving spending now, more important by far, we suspect, than tax rebates, that is likely to be absent in the future. The Mortgage Bankers Association of America issued Monday revisions to its forecasts for mortgage issuance. Here, it appears the risks to the forecast had been down rather than up.

"We have been forecasting mortgage interest rates to slowly increase, eventually drying up the refinance market, but the recent upsurge in rates has moved that event forward," said Douglas Duncan, MBA's chief economist and senior vice president of Research and Business Development.

The rates Duncan refers to are the longer-term interest rates which apply to mortgages and which have been pushed up of late by a fall in the price (and rise in the yields) of the U.S. government's debt.

What the MBA forecasts is a 52 percent decline in mortgage originations in the United States in 2004 from their forecast for 2003. A big drop in mortgage refinancings will be the main factor, in the MBA's view.

The numbers we are talking are huge. The MBA puts the value of fresh mortgage refinancings at $1.46 trillion in 2002, a sum equivalent to about one sixth of GDP in the world's biggest economy. In 2003 the MBA sees mortgage originations peaking at $3.19 trillion, with $2.1 trillion of this total (close to one fifth of U.S. GDP) accounted for by refinancings of previous mortgages: a process which, as we have pointed out on previous occasions, not only saves the borrower money but often offers him or her an opportunity to obtain cheap money for consumer purchases.

In 2004, by contrast, the MBA sees mortgage originations dropping to $1.54 trillion and refinancings to just 430 million, little more than a quarter of 2003's level. The free-flowing tap of refinancing will have been turned off.

Historical data throw more light on this whole phenomenon of the bubbly housing market. In the eight years from 1990 to 1997 mortgage originations averaged just $745 million per year. The trillion mark was surpassed only once, in 1993. A reminder: this year the MBA expects more than $3 trillion in originations.

The refinancing boom has been enormous, a huge stimulus to U.S growth. It peaked in May to June this year, since when, aas J P Morgan points out, the data have been stronger. But what will happen to the U.S. economy when refinancing peters out, as the MBA expects it to, later this year and into 2004?

Perhaps J P Morgan ought to give some thought to that. Investors would be foolish not to.

By: Ian Campbell