Stock markets - a sustainable recovery?

published 30 May 2013

The latest batch of positive news from America helped stockmarkets find their feet again after last week's slide. American house prices jumped by 10.9% in the year to the end of March, according to the Case-Shiller index. That's the biggest rise since the height of the housing boom in 2006. Prices are still 28% below their peak, however. Sales of previously owned houses hit a three-year high in April. Consumer confidence has reached a five-year high, according to the Conference Board. The pace of payroll growth has accelerated in the past three months and durable goods orders are approaching their pre-recession peak.

What the commentators said

America's recovery has been poor compared to previous ones. GDP has grown at an annualised rate of just 2.1% since 2009 and is just 3.6% above the pre-crisis peak, noted Standard Chartered. Still, that's the fastest rebound of all the major developed economies. And now the markets reckon America "will emerge with a sustainable recovery earlier than most", said Fxpro.com.

The housing rebound should endure. Demand is slowly improving as the labour market outlook brightens, mortgage interest rates are at historic lows and credit conditions ease. Supply has finally tightened, with inventory recently falling to a 13-year low. Rising house prices, along with buoyant stockmarkets, have cheered consumers.

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Indeed, this "positive wealth effectis being underestimated", said Nick Stamenkovic of RIA Capital Markets. It appears to have offset the impact of higher taxes and government spending cuts on demand. Meanwhile, households have been working off their debt for the past few years and we are now "much closer to the end of the deleveraging cycle than the beginning", said Gennadiy Goldberg of TD Securities. That bodes well for future consumption.

Meanwhile, the budget deficit "is closing much faster than expected", said Hamish McRae in The Independent, thanks to the automatic spending cuts now in force and tax receipts climbing faster than anticipated. Five years after the crisis, the pieces are finally in place for growth to move up a gear and become self-sustaining.