U, V, W, L, the letters of US economy
Last Friday Ben Bernanke tried to give markets confidence back by announcing that FED would apply more stimulus if the economy need it. Nevertheless, uncertainty continuous in markets. Is US Economy going to a U, V, W or L scenario? Nobody has the answer but many doubt about the future of the biggest economy in the world.
Today's data about personal spending is a good sign. However, personal income keeps low and market labour weak. The recovery of the second half of 2009 and the first quarter of 2010 was due to labour productivity and not because of job creation.
The FED has more bullets, but are they enough to gain momentum for a new recovery? Many are debating about US economy figure. Some fear about the probability of W scenario or even worst an L scenario as Japanese economy showed us in the 90's.
In my opinion we are under a normal situation of slowdown phase of economic cycle, but I'm not sure about a W scenario. I think that the stabilization of economic indicators will come soon and then the economy could boost again. But the key are job creation, re-establishment of consumer credit and consumer confidence. Consumption explain 2/3 of US economy and credit crunch hasn't been left behind.
Investor are looking for safety and they find it in US Treasuries. Other finance assets are considered too risky for these times, except gold. We must let future economic indicators to teach us about where the economy is going. Meanwhile, we have to wait and decide which is the next movement.