Experts Talk Consumer Confidence, Greek Rescue, Obama Foreclosure Plan
Bloomberg BusinessWeek compiles comments from Wall Street economists and strategists on the key economic and market topics of Mar. 26.
Yelena Shulyatyeva, BNP Paribas
The University of Michigan Survey of Consumer Confidence index remained flat in March at 73.6, while moving up 1.1 points from the preliminary estimate. The consensus was looking for a slightly smaller increase to 73.0. The Michigan survey suggests more consumer optimism compared with the numbers we saw earlier last month when the Conference Board index plunged by 10.5 points. We expect it to partially rebound to 51.0 in March. The Michigan index generally peaks in the early stages of economic recovery, when growth is high. By contrast, the Conference Board Index, which closely tracks the unemployment rate, generally peaks in the late stages of economic expansion, when unemployment is low and the level of economic activity is high.
The current index, which summarizes consumers' opinions about current buying conditions and whether they were better off or worse off financially, improved slightly to 82.4 in March from 81.8 in February. The future expectations index edged down to 67.9 in March from 68.4 in February.
Five-year-ahead median inflation expectations, the figure tracked by Fed policymakers, remained at 2.7% in March, the lower end of the range it has been in over the past 15 years. Further weakness in inflation expectations on the heels of soft inflation prints would keep the Fed dovish for an extended period.
Nathan Janzen, RBC Capital Markets
The second estimate of fourth-quarter 2009 U.S. gross domestic product growth was revised lower to a 5.6% annualized rate from the 5.9% gain reported in the second estimate. This leaves the final estimate of fourth-quarter growth slightly below the 5.7% initially reported in the advance estimate. Market expectations going into the report were for the rate of growth in the fourth quarter of 2009 to remain unchanged.
The downward revision to fourth-quarter GDP growth leaves the solid increase previously reported greatly intact; however, it does not alter the fact that a sharp reduction in the pace of inventory liquidation accounted for the bulk of the surge in overall activity at the end of last year. More encouragingly, the report confirms that rising consumer spending and investment in equipment and software contributed to a rise in final domestic demand for a second consecutive quarter at the end of last year, albeit at a slightly more moderate pace than previously reported. …We expect that overall GDP growth will moderate to a 2.5% annual rate in the first quarter of 2010. While we expect positive growth to continue during 2010, economic slack built up during the recession is expected to keep inflation subdued, thus allowing the Fed to maintain its policy at highly stimulative levels until the economic recovery is more firmly entrenched. We do not expect an increase in the fed funds rate from its current 0%-to-0.25% range until the end of this year.
Phil Poole, HSBC Securities
The financing plan for Greece was largely as expected: (a) A last resort-style program to be triggered only in the event of "very serious difficulties"—it will limit the risk of contagion beyond Greece, but will definitely keep Greece on the austerity hook; (b) A central role for the IMF—although the IMF is only expected to provide one-third of the financing (with the rest coming from coordinated bilateral loans), IMF conditionality would likely be the trigger for disbursement of all funding; (c) Short on detail, including the overall size of the financial support package; (d) Not a "bailout"—bilateral loans, if extended, would be at market rates.
The hope is that the ultimate availability of funding via this plan will help contain spreads but, one way or another, Greece will be forced to come to the market for refinancing. So in essence, this is mostly about self-help. And beyond the short-term repayment hump that the market is still likely to focus on, Greece continues to face an uphill struggle to stabilize debt ratios and restore credibility to public finances.
Sal Guatieri, BMO Capital Markets
[On Mar. 26] the Obama Administration will provide details on a $14 billion plan to help some of the estimated 11 million "underwater" borrowers reduce their mortgage balance. It will provide subsidies to homeowners who owe more than their home is worth, allowing them to refinance with government-backed loans, and provide temporary mortgage-payment relief to the unemployed. The plan will complement the existing $75 billion foreclosure-prevention program, which has helped only 170,000 households permanently reduce their monthly mortgage payments and hasn't stemmed the wave of foreclosures.
The number of serious delinquent mortgages rose in the fourth quarter, flagging more foreclosures ahead, though the number of early delinquencies is falling. The new plan to reduce mortgage debt offers a greater chance of curbing foreclosures than the current payment-modification program, since it should cut down on the number of "strategic defaults." However, it also puts the taxpayer at greater risk, especially if the housing market heads south again.