Wednesday, December 9, 2009

Recovery will be stronger than consensus, says Barclays Capital chief U.S. economist

"U.S. economic growth is recovering robustly, receiving the usual cyclical boost from housing and inventories," said Dean Maki, managing director and chief U.S. economist of Barclays Capital in his "U.S. Economic Outlook" presentation to the Boston Security Analysts Society (BSAS) on December 8. 

Maki said the U.S. economy will recover strongly, as it typically has done following past recessions. He disagreed with the many pundits who say "This time is different" and that the economic recovery will be drawn out because tight credit will keep consumer spending weak.

Credit is always tight following a recession, Maki said. "In these strong [economic] recoveries of the past, we haven't needed strong credit growth," he added. 

Maki discussed the following drivers of strong economic growth:
•    Production is set to grow much faster than final demand.
•    Housing is starting to rise because of its greater affordability.
•    Business has cut too much during downturn, so companies must boost spending soon to grow profits.

Some predictions
•    Real GDP will hit 5% by the first quarter of 2010 and stay at or above 3% in 2010.
•    Unemployment has peaked and will fall to 9.1% by the fourth quarter of 2010.
•    Inflation--and the fed funds rate--will remain low. However, the Fed will raise rates in the second half of 2010.

A couple of unexpected developments could derail Maki's predictions, he said. One is a sharp fall in the stock market. The other is a sharp rise in commodity/energy prices as a result of global economic growth. 

Do you agree with Maki's predictions? Please comment.

Dec. 11 update
If you're a member of the BSAS LinkedIn group, you can join a conversation there about Maki's talk.

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved


  1. Hey Susan,
    I really don't agree with Maki for the reason that he says he disagrees with other analysts -- I think the economy is undergoing a secular shift and that the old paradigms are not the correct ones to turn to. Unlike previous recessions, the typical American is still trying to reduce debt; further, one-in-four houses have mortgages that are bigger than the home values. Jobs that have left not just Wall Street but many other industries -- like journalism -- are never coming back. At least not in their old forms. Further, debt as a percent of GDP is surging and the interest on current debt is mounting -- it's a time bomb that will cripple investment and growth. And finally, even his predictions aren't exactly champagne-bottle popping. Five percent GDP growth is pretty weak coming out of a recession this deep; that won't translate into huge jobs gains going forward. I seriously doubt that employment has reached its low point. I suspect November will be revised downward. I think we are in for a long, hard slog. Calculated Risk has an interesting image for the current state of employment: Imagine everyone in a gym. Those who have been pushed out can't get back in. Those still inside are likely to remain. That's the jobs picture for sometime to come, at least in my view.

  2. Nance,If I understand Maki correctly, he believes that when production picks up, it'll drive up household work hours and as household income growth turns positive, they'll start spending BUT without going on a borrowing binge. So, he doesn't see tight credit as big problem. Also, he doesn't foresee much of an increase in the savings rate.

    Also, he believes even a modest boost in consumer spending will have a big impact on GDP growth because production cuts have reduced inventory. One of his charts is called "Inventory cycle is larger than in past recessions." He says "This is a massive upward push, much of which has yet to hit the economy."

    Also, deleveraging is NOT that important, he says, because it was increases in the prices of assets that drove the last boom, NOT debt/income levels. With the recovery of the stock market, both the wealth effect and income growth will help GDP growth.

  3. I can't believe that he says deleveraging doesn't matter. Cheap debt enabled free-spending which pushed up prices. With so many people facing negative equity in their homes and backed-up credit cards, consumers won't get the same wealth effect they once did from rising stock prices if they can't use their homes as piggy banks.
    True, inventories are low; a spurt in spending could give a lift for one or two quarters. But I find it hard to argue for much more than that. Unless, of course, everyone quickly forgets the pain of the past two years. Which is more possible than I'd like to believe.

  4. Too bad Dean Maki doesn't have a blog where we could post your comments. I wish I could give you more satisfaction.

    One of my fellow BSAS members told me he found Maki very credible, but the next day he heard PIMCO's Bill Gross speak more pessimistically and yet also convincingly.


Note: Only a member of this blog may post a comment.