Housing, Domestic Oil May Boost U.S. Growth, Pimco Says

The U.S. economy is poised to grow for the next three to five years amid improvement in the housing market and reduced reliance on imported energy, according to Pacific Investment Management Co.

Domestic factors could boost economic growth by half a percentage point, year-over-year, beyond its 2 percent pace, Saumil H. Parikh, who leads Newport Beach, California-based Pimco’s cyclical economic forums, said in a copy of comments obtained by Bloomberg News. He said the federal deficit could hinder employment growth if politicians fail to address the so- called fiscal cliff.

“Despite legacy issues of debts and deficits, the U.S. economy remains fundamentally one of the most productive, innovative and vibrant,” Parikh said.

More Americans than forecast signed contracts to purchase previously owned homes in May, suggesting the real estate industry is firming three years after the start of the economic recovery. The index of pending home resales climbed 5.9 percent to 101.1, matching a two-year high reached in March, after a 5.5 percent decline in April, according to figures from the National Association of Realtors released June 27.

Energy Output

U.S. oil production has increased to the highest level in more than 12 years. Drilling has expanded in states including North Dakota, Texas, Oklahoma, Wyoming and Colorado.

Parikh said he expects the dollar to strengthen against its developed peers. The dollar has depreciated against all but one of its 16 major counterparts during the past 10 years.

The U.S. currency is 25 percent undervalued against the yen, based on an index developed by the Organization for Economic Cooperation and Development in Paris that measures currencies using prices for similar goods and services in two countries.

“The outlook for the U.S. dollar is relatively better than for several other developed currencies, as relative considerations including valuations begin to matter,” Parikh said. “For all those reasons, and because the dollar has already weakened substantially relative to such currencies as the euro, yen and pound, we expect the dollar to begin to appreciate over a secular horizon.”

Growth Markets

He said the emerging-market currencies will likely outperform the dollar, long-term.

“Globally, we see emerging markets as potentially offering much more value from real economic growth,” Parikh said. “We believe their growth rates are likely to continue to outpace the developed world over a secular horizon, and they tend to have less leverage on their public and private balance sheets.”

The November U.S. elections will be critical in assessing progress to address tax increases and spending cuts scheduled to begin next year, he said. Failure to adopt changes to the deal linked to last year’s increase in the federal debt limit may end the recovery, he said.

“We expect they would result in a contraction of about 4 percent of gross domestic product,” Parikh wrote. “Since the U.S. economy is expanding at a rate of about 2 percent, such a fiscal cliff would mean certain recession in 2013.”

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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