August 15, 2013

WSJ Upbeat, Roubini Down on Second Half

Journal sees stronger household finances; Roubini sees economic deceleration and weakness in emerging markets and gold

Nouriel Roubini at the World Economic Forum in 2011. (Photo: AP) Nouriel Roubini at the World Economic Forum in 2011. (Photo: AP)

Just as the economy is showing signs of emergence from a lethargic recovery, economist Nouriel Roubini is warning Americans should lower their expectations for growth in the second half of the year.

No less than the Wall Street Journal heralds the good economic tidings as the lead news item in Thursday’s print edition.

“After years of struggling to shed debt, Americans are finally gaining enough confidence in their finances to step up borrowing for autos, homes and other goods — a shift that could boost the economic recovery,” the Journal declares.

The paper cites lots of happy news, including a decline in consumer debt of $78 billion last quarter, down to $11.15 trillion, the lowest level since 2006, before the financial crisis.

Yet in an illustration of the complexity of reading economic tea leaves, noted economist Nouriel Roubini seems unimpressed with newly strengthened household finances, pointing out on his Twitter page on Thursday:

“Philly Fed much worse than expected; it dashes the view of those - including GS - expecting significant US growth acceleration in H2.” A later afternoon Tweet is more specific, forecasting “2013 GDP growth at a mediocre 1.6% but 2014 at 2.5%.”

The Federal Reserve Bank of Philadelphia report, released Thursday, forecasts continued expansion for mid-Atlantic manufacturers, but the pace of growth is expected to decelerate significantly. Its monthly index reading fell from a nearly two-and-a-half-year high of 19.8 last month to 9.3 this month, a significant fall.

Any positive number indicates expansion, while negative numbers signify contraction. Among the August survey’s sub-indexes, the shipments index fell a steep 15 points into contractionary territory; unfilled orders and delivery times were also negative.

While a tweet does not provide room to explain why Roubini attaches so much weight to the Philly Fed index, the famed economist is not called Dr. Doom for nothing. The consultant and New York University professor has sent out a variety of negative tweets recently, including retweets of two Financial Times stories, one suggesting the stock market is overvalued and another that takes some air out of emerging markets enthusiasm, as well as a re-tweet of a  gloomy Bloomberg story about the gold market bust.

While the Journal’s reporting, citing economists at TransUnion and JPMorgan Chase, suggests that reduced debt and increased credit “could help propel U.S. growth in the second half of the year and help offset worries about federal spending cuts and weaker economies abroad,” Roubini’s consulting firm has recently counseled selling emerging market investments and gold.

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Check out Roubini, Others: Where to Find Global Opportunities Amid Market Volatility on ThinkAdvisor.

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