Financial markets and their cheering section are trumpeting the U.S. economic recovery, but it may be a false dawn in America, according to Stephen Roach, a Yale University economist and former Morgan Stanley Asia chairman.
Roach said the good news is that GDP appeared to grow in the back half of 2013, the official jobless rate is down and the Federal Reserve feels confident enough to taper back on its mountain of monetary stimulus.
"But my advice is to keep the champagne on ice," he said in an opinion piece for
Project Syndicate. "Two quarters of strengthening GDP hardly indicates a breakout from anemic recovery. The same thing has happened twice since the end of the Great Recession in mid-2009. . . . In both cases, the uptick proved to be short-lived."
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Roach suspects most of the "growth" the nation has experienced is derived from inventory re-stocking by companies rather than actual sales. In reality, he said, the nation is caught in the vice of a continuing "balance-sheet recession" among consumer households.
"In the past, when discretionary spending on items such as motor vehicles, furniture, appliances and travel was deferred, a surge of 'pent-up demand' quickly followed.
"Not this time. The record plunge in consumer demand during the Great Recession has been followed by persistently subpar consumption growth."
Roach compared the American consumer to Japan's corporate "zombies" — companies that have been rendered essentially lifeless by balance-sheet problems for years on end, but which are still in business.
He noted the debt/income ratio for American households is now down to 109 percent, but is still 35 percent higher than the average of recent decades.
According to Roach, lower interest rates are "nothing more than a temporary subsidy from the Fed," and if the number of jobless who have given up looking for work were factored into the unemployment equation, the true jobless rate would be over 11 percent and not the official rate of 6.7 percent.
Roach's pessimism is not shared in all quarters. Olivier Blanchard, chief economist for the International Monetary Fund (IMF), said economic growth has arrived both in the United States and at the global level.
In commentary accompanying the IMF's January "World Economic Outlook Update," Blanchard concluded that both the developed and the emerging market nations should experience growth in 2014.
While the global recovery is "weak and uneven," Blanchard said it is stronger in the United States than in Europe, and that emerging markets should also participate in the uptick this year.
He described the threats to the IMF's 2014 outlook as being the possibility that efforts to return to normal interest rate policies among sovereign states could go awry, and that deflation could gain a foothold in Europe.
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