A pair of bank economists, Patricia Mohr, VP Economics & Commodity Market specialist with The Scotiabank Group and Dana Johnson Senior Vice President and Chief Economist at Comerica Inc both believe the US has returned to growth this quarter. Mohr said the US economy has grown by three percent during the third quarter of this year with commodities outperforming equities. Meanwhile Johnson also stated the economy started to grow in the third quarter though its, “still operating at depressed levels. Despite a Ëœsubstandard recovery Johnson believes the recovery will beat what forecasters are predicting and calls for GDP growth of 4% during the next four quarters.
Mohr said re-stocking, strong fiscal and monetary policies as well as stimulus programs, (although the bulk of the stimulus programs for shovel-ready projects will happen in 2010) have all contributed to the recovery. She also cited industrial activity has begun a turnaround. Mohr went on to make several price predictions for key commodities including copper at $2.30/lb for 2009 and $2.90/lb for 2010 ($5070 and $6393/ton respectively). She suggested aluminum prices would be in the $.90/lb range for 2010. The bank forecasts zinc at $.83/pound and nickel at $7.45 pound for 2010. Mohr also predicted oil prices would reach $90 barrel in 2010.
Johnson believes three factors have driven and will drive the economic recovery. First, he suggests that the deep drop in demand will equate to more upside in demand as the economy recovers. He mentioned pent up demand will help spur activity and believes the policy response to the recession by the Fed as well as the President and Congress in the form of stimulus packages has provided the impetus to put the economy on track. He also said that the degree of recovery is proportional to the amount of job growth. In other words, the greater the economy grows, the more it will add jobs. A sluggish recovery will mean fewer jobs. Johnson suggests that this recession, unlike previous recessions, created the largest loss of net worth in the household sector (down 24%).
We question some of Johnson’s predictions. First, the American economy runs on consumer spending (I believe the number is 70% of America’s GDP comes from consumer spending). Unless/until/when Americans feel richer, consumer spending will remain Ëœtepid.’ MetalMiner posed a question about deflation vs. inflation particularly in terms of rising commodity prices, but Johnson suggested that commodities only account for 3-4% of US value-add, therefore commodity inflation will have little impact on overall inflation. Moreover, he suggested the Fed would intervene to raise interest rates and adjust monetary policy to prevent inflation by the middle of 2010. He may be right on inflation but a GDP of 4% growth seems a tad too optimistic to us.
You can read more about the conference here from Purchasing.com. We’ll post some of our Ëœlessons learned’ as well.