{"id":945,"date":"2012-03-16T13:00:00","date_gmt":"2012-03-16T13:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2012\/03\/16\/viewpoint-the-us-economy-in-2012-is-caught-in-a-kind-of-pre-election-limbo\/"},"modified":"2012-03-16T13:00:00","modified_gmt":"2012-03-16T13:00:00","slug":"viewpoint-the-us-economy-in-2012-is-caught-in-a-kind-of-pre-election-limbo","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-the-us-economy-in-2012-is-caught-in-a-kind-of-pre-election-limbo\/","title":{"rendered":"Viewpoint: The US economy in 2012 is caught in a kind of pre-election limbo."},"content":{"rendered":"

<\/span><\/span>The markets are celebrating a string of encouraging macroeconomic data. We remain very cautious on the US scenario for 2012 and, even more so, 2013… <\/strong> <\/strong><\/p>\n

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For professional investors and advisers only<\/strong><\/p>\n

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Downside risks are weighing on the outlook: the effects of surging oil prices on consumption in the short term, fiscal consolidation in the closing months of the year, and the possibility of new clashes over the debt ceiling.<\/div>\n

The opening months of 2012 saw positive indications come from economic variables in the United States: confidence surveys, production, consumption, employment, and real estate market all seem to be showing a recovery compared to the early autumn. GDP growth in Q4 2012 was 3% q\/q annualised, and the rate may still be revised upwards. The markets celebrated the acceleration of the recovery. Despite encouraging macroeconomic signals, we are not revising upwards our growth estimates for this year. What\u2019s more, in Q1 GDP growth should slow considerably compared to the end of 2011, to close to 1.6% q\/q ann. Uncertainties are still weighing on the scenario for 2012 and, even more so, for 2013. The main downside risks are higher oil prices, and state and federal fiscal consolidation.<\/p>\n

We continue to forecast moderate growth in 2012 (2.3%), with a mixed quarterly path: the opening months of the year should bring a slowdown compared to the end of 2011, inflated by a 1.9 pp contribution of inventories, and by the expiration of investment incentives, the effects of gasoline price increase on consumption will become more evident in Q2. No particular drags on the economy are expected in Q3 2012, at least for now. In Q4 2012, on the other hand, the first effects of the forthcoming fiscal consolidation could start to be felt, and political clashes could materialise over the federal debt ceiling.<\/p>\n

The effect of oil price increases will be stronger on growth than on inflation. The Department of Energy has raised its estimate of energy prices for 2012, placing the forecast WTI price at 106 USD in 2012 (+ 5 USD vs. the February estimate) and gasoline at 3.79 USD\/gallon, from 3.53 in 2011. Based on Oxford Economic Forecasting estimates, a 5% increase in the price of oil results after one year in a rise in core inflation of 0.1 pp, and a 0.14 pp subtraction from GDP growth. On a quarterly basis, most of the drag should materialise between the end of Q1 and the end of Q2, in the form of a slowdown in consumption. Spending on gasoline and other fuels accounts for 2.5% of total spending in real terms. The price of gasoline increased by 7.2% between December and February. Real consumption growth in January, of 1.5% y\/y, was cooled by a fuel effect of 0.35pp: this effect is set to increase considerably in the months ahead, weighing on overall consumption growth. Also, the trend of real disposable incombe has been stuck at 0.7% y\/y since mid-2011, and does not allow us to expect resilient exgasoline spending levels.<\/p>\n

As regards fiscal policy, the overall stance is becoming more restrictive. At state level, fiscal restriction remains substantial, despite the cyclical improvement and the resulting increase in tax revenues. The drying up of Federal transfers implies corrections at the state level of 100 billion dollars in fiscal year 2012, and 47 billion in 2013, according to the Center for Budget Policy Priorities. The crucial point, however, lies with the federal budget: until Q3, the country will be caught in a pre-election limbo, with no decision-making power (and, what\u2019s more, without an approved Budget for fiscal year 2012, which started on Oct. 1st). In Q4 a new clash could take place over the Federal debt ceiling, involving Congress and the President. Even more importantly, at the end of December tax cuts worth around 400 billion dollars will expire, new taxes worth 20 billion will come into force. As of Oct 1st 109.4 billion dollars in \u201cautomatic\u201d spending cuts will start: 54.7 billion on the Defence budget, 38.6 billion on other discretionary spending, and 16.1 billion on mandatory programmes. The total expected restriction totals app. 530 billion dollars (3.3% of 2013 GDP). Congress will take office on January 3rd, the President a few weeks later: will they be able to stop such an avalanche of measures set to come into force by 1st January?<\/p>\n

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Appendix
<\/strong> <\/p>\n

Analyst Certification<\/strong>
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.<\/p>\n

Important Disclosures<\/strong>
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
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Valuation Methodology<\/strong>
Trading Ideas are based on the market\u2019s expectations, investors\u2019 positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and\/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and\/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.

Coverage Policy And Frequency Of Research Reports<\/strong>
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer\u2019s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A\u2019s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI\u2019s web site (www.bancaimi.com) or by contacting your sales representative.<\/p>\n

Source: BONDWorld – Intesa Sanpaolo \u2013 Research Department<\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

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