U.S. Economy's Downturn `Escape Velocity' Growing, Pimco's Crescenzi Says

A gain in retail sales for a second month shows the economy is beginning to accelerate, according to Tony Crescenzi, a portfolio manager and strategist at Pacific Investment Management Co. in Newport Beach, California.

“The economy does have some degree of escape velocity in that the movement beyond fiscal stimulus and inventory investment requires consumers to go out and spend,” Crescenzi said in an interview on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays.

Sales at U.S. retailers climbed 0.4 percent in August after rising 0.3 percent in the previous month, the Commerce Department reported today. Bigger back-to-school discounts, an increase in the number of states offering tax-free holidays and the restoration of extended jobless benefits may have helped boost demand.

The economy still needs increases in job growth before economic growth can reach a self-sustaining “virtuous cycle,” said Crescenzi, whose firm operates the world’s biggest bond fund. “It’s important that this degree of escape velocity has occurred, but you could say the ship is not far enough in orbit to believe it will stay in orbit.”

The economy has added an average of 90,000 jobs each month since the start of the year after posting gains in payrolls in November for the first time since December 2007.

‘Still Undershooting’

“We’re still undershooting the job growth that’s necessary to maintain this escape velocity,” Crescenzi said.

The recovery in global growth in also hindered as consumers try to reduce debt and governments seek to contain fiscal imbalances throughout the developed world, Crescenzi said.

“The overhang of debt” is acting as a drag on spending, slowing the pace of global economic recovery, Crescenzi said.

European nations as well as the U.S. have become reluctant to spend more to stimulate the economy, Crescenzi said.

“That leaves the Federal Reserve to carry much of the burden, and that means keeping interest rates low for longer and having to consider engaging in quantitative easing, adding money to the system, to try to push people out the risk spectrum,” Crescenzi said.

Global growth will be below average during the next three to five years as developed economies struggle with mounting deficits and increased regulation in the wake of the 2008 collapse of credit markets, according to Pimco.

Pimco, which has been synonymous with bonds for almost four decades, in the past year has created an equity mutual fund and a unit to invest in hedge, real-estate and buyout funds. The company, which managed more than $1.1 trillion of assets as of June 30, according to its website, is a unit of the Munich-based insurer Allianz SE.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Kathleen Hays in New York at khays@bloomberg.net

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