The outlook for the U.S. economy – indeed, for the global economy as a whole – keeps getting more dismal by the week, it seems. That’s probably why Creedence Clearwater Revival’s darkly-themed tune Bad Moon Rising keeps popping up on my digital playlist.
Take for example the recent Global Economic Conditions Survey (GECS) conducted in the second quarter this year by the Association of Chartered Certified Accountants (ACCA) and Institute of Management Accountants (IMA).
This worldwide poll of 2,700 professional accountants suggests that hints of a stronger recovery were mostly down due to misplaced optimism, leaving the global economy as fragile now as it has been over the last three years, the group said.
Respondents also fear that governments, already living beyond their means, may struggle to get back on track through extra public spending.
Accountants working in major economies (such as the U.S.) report that fiscal stimulus by their governments is already at unsustainable levels. In only a few markets did respondents believe their governments could spend both robustly and sustainably, such as in Singapore and the United Arab Emirates.
“Finance professionals who responded to this survey were quite at ease with the prospect of austerity until mid-2010,” noted Raef Lawson (at left), IMA’s vice president of research. “Then the recovery failed to take off and everything changed. Relatively few now believe their governments can make austerity work. There is a limit to what even countries with strong credit ratings and no liquidity constraints, such as the U.S. and China, can do.”
However, in terms of business confidence and optimism, the U.S. appears to be pulling its weight in the global recovery, the ACCA’s poll uncovered. Indeed, three out of 10 respondents to its survey in the U.S. reported confidence gains in the last three months, while 31% said confidence declined. Similarly, U.S.-based respondents held on to some of their optimism about the global economy, with 43% saying they think the global recovery is still on track.
Regional divisions, however, are becoming evident in the U.S. sample, ACCA noted. In the Mid-Atlantic, Northeast and West, the last three quarters have seen a fairly consistent recovery in business confidence, while the Midwest and the South have seen a pattern similar to the broader global trend, with part of the confidence gains reversed in the second quarter. As a result, the West now leads the rest of the U.S. for business confidence, the group said.
ACCA and IMA also believe that part of the reversal in the U.S. appears to have been due to respondents in the public sector as news of mounting job losses in the public sector in early 2012 may have weighed on sentiment at the time.
In terms of fundamentals, there was much to celebrate in the second quarter in the U.S. as respondents to the group's poll reported improved financing conditions, a thaw in the labor market, stable levels of capital spending, and more profitable business and investment opportunities arising. However, new orders appear to be falling, a trend which could prove problematic if it persists.
Finally, 49% of those surveyed said they expect government spending to stabilize; however, there’s a significant shift in favor of austerity, with 81% of respondents saying that government spending must fall over the next five years, ACCA reported. This continues a long and strengthening trend of U.S. respondents expressing concerns about the sustainability of fiscal policies, the group pointed out.
Mark Zandi, chief economist for Moody’s Analytics, went a step further in his monthly outlook release at the end of last week, saying that optimism for the global economy depends heavily on the decisions of policymakers in the U.S. and others.
While he expects the U.S. economy to gain traction going into 2014 and to return to full employment, meaning a jobless rate lower than 6%, by late 2015, Zandi warned that action will be needed after the November election to address the dreaded “fiscal cliff” to avoid a new recession in the U.S.
“The U.S. tax increases and spending cuts slated for next year constitute more than 4.5% of GDP [gross domestic product], which an economy growing at 2% cannot withstand,” Zandi (at left) stressed. “While the current consensus view holds that Washington is likely to take the path of least resistance, extending the Bush-era tax cuts and canceling most of the scheduled spending cuts, doing so will delay progress toward making the government’s finances sustainable. By early 2013, the next president and Congress may have to behave differently than their predecessors to avoid this.”
He also pointed out that while the U.S. economy is growing, it’s doing so “uncomfortably" slowly.
“Real GDP is expanding at an annual rate of only 2%, and recent payroll job gains have averaged 75,000 per month,” he noted. “At this pace, unemployment will remain stuck above 8% for some time.”
Still, despite the difficulties, Zandi the U.S. economy can indeed “rebound” if policymakers take serious fiscal action once the November election passes.
That’s a very big “if” though.