The razor's edge - the economy
Steven Roach has another article on the overall state of the economy.
This continues his analysis that I posted about here
He is concerned about the effects of increased oil prices combined with the Fed tightening money here in the US. His other major concern is China cooling off its economy. He now puts the odds of a global recession in 2005 at 40%
While the just-released July retail sales report points to a rebound in the third quarter, further increases in oil prices in the face of anemic job growth should temper any optimism. Moreover, I am starting to get worried about rapid inventory building in the face of this oil shock; in the three months ending June 2004, total stocks of manufacturing and trade establishments have risen at about a 9% average annual rate -- triple the growth rate of business sales over this same period. This borrows a page right out of the script of the summer of 1974, when the first OPEC shock led to an unwanted inventory overhang that blindsided the Fed and set the stage for severe recession in 1974-75.
The Fed, of course, doesn’t see it that way. Its August 10 policy statement contained a very explicit forecast of better times ahead. Despite recent energy-related weakness, the FOMC maintained that “(t)he economy nevertheless appears poised to resume a stronger pace of expansion going forward.” It is very rare for America’s normally reticent monetary authorities to make such an explicit forecast of the future. Just out of curiosity, we combed the archives back to 1994 (when the Fed first began to release such policy statements) and came up with only one earlier instance when the FOMC was equally explicit in articulating a forecast. It was in June 2002, when America’s post-bubble recovery was flagging once again
emphasis mine. Couldn't be political could it? They wouldn't do that? Yeah right.
Here's his summary
I hold the view that the US is fundamentally unsound -- increasingly vulnerable to the imbalances of its twin deficits, excessive household indebtedness, a record shortfall of national saving, and unusually anemic job creation and wage income generation.
Time for a drink!