Three dimensions to see the recovery of the U.S. economy

Recently, the prospects for the dollar, the market has been more discussion. Catalyst that triggered this discussion, it is within the Fed about the dispute before the end of the year, ahead of the end of QE. However, we will find and then dig deep layer the recent steady U.S. economic recovery momentum is the Fed discussions ahead of the end of the asset purchase, the market began to look forward to the root cause of the appreciation of the dollar. Therefore, the assessment of the kinetic energy and sustainability of the economic recovery in the United States, to predict the Fed's next policy deployment plan asset allocation in the context of the U.S. dollar, has a very important significance.

So, how to evaluate the kinetic energy and sustainability of the U.S. economic recovery?

Analyzes from three dimensions: First, not only to look at the total GDP, but also the GDP constituted. This can be judged, and government departments in the trap sub, or the private sector added leverage. Second, is to not only look at the economic growth, but also the improvement in the employment situation. Employment is a lagging indicator of the economy, but the improvement in the employment situation is a necessary prerequisite for further economic growth. Especially for private consumption accounted for seventy percent of the total economy. The third is to not only look at the current policy response, but also the future of the policy space. Certainly make economic policy one o'clock at full speed to take bubbling, lack of stamina but the policy also will make the economy their true form.

Look at the first dimension. U.S. economy unexpectedly contracted in the fourth quarter of last year, but the economic autonomy significantly enhanced growth momentum. Revised GDP in the fourth quarter of last year, annualized growth of 0.1%, the worst performance since 2009. Reduced government spending and private inventory investment to reduce drag on the economy, 1.38% and 1.55%, respectively, is a major promoter of economic contraction unexpectedly. However, the former may be affected by the automatic spending cuts mechanisms worries tired on government spending even more timid; latter data volatility has always been to wait for further correction value out then observed.

However, we should not be the U.S. economy is about to fall into recession "appearance intimidated. Private consumption expenditure, especially private fixed-asset investment rebounded significantly. Private fixed-asset investment to pick up, possibly marking the U.S. private sector deleveraging process has been completed (U.S. corporate credit markets since the second half of last year, the outstanding debt balance accounted for a smooth recovery in GDP, slightly lower than the current 53%). U.S. economic growth baton gradually turned to the hands of the private sector from government departments, the dependence of economic policy stimulus is reduced accordingly. In late January FOMC meeting statement, the Fed believes that the current economic stagnation is mainly affected by temporary factors, significantly alleviate the fears of the U.S. economic downturn. It can be said, it is an eye-catching performance of private consumption and investment in fixed assets to the Fed to eat a "reassurance". The private sector needs stronger maximum characterization of the U.S. economic recovery, the fundamental relying on sustainable recovery.

Look at the second dimension. In recent months, the U.S. job market can be used after the storm there is always sunny "to describe. Less than expected number of new non-farm employment in January, November and December last year, the number of new non-farm employment has substantially increased. In February, the number of new non-farm employment in the United States sharply rose to 23.6 million, and the unemployment rate dropped to the lowest level since December 2008, 7.7%. The past four months, the United States average monthly increase of about 205,000 non-farm jobs, this release is a very positive signal. The more high-frequency 4-week moving average of initial claims for unemployment benefits has dropped to less than 350,000 (the empirical observation that, if the first time jobless claims stabilize below 375,000, it shows that the employment needs of the job market is strong, the future The unemployment rate will continue to decline). These are evidence of a recent issue of the Federal Reserve Beige Book Fed judgment on the momentum of the job market to expand at a moderate pace.

Therefore, to say that the U.S. job market is deteriorating a bit exaggerated, but at present, improved slow and limited only. In fact, the United States has moved from the "jobless recovery" degenerated into a "jobless recovery" stage. Moderate expansion in employment will certainly boost household consumption, and further leveraging corporate investment, essential boost to the U.S. economy. The concern is that the the January Fed minutes released last week, there is a very significant changes in policy tone that significant improvement in the job market is no longer a necessary condition of the Fed's exit open QE. This is also from the side, employment lagging economy, but a positive impact, the Fed has been more sober and objective cognitive

From view last one dimension, we need not worry too much about the policy of economic constraints. U.S. fiscal policy contraction than the market expected to moderate, the adjustment of monetary policy may be more than the market expected to be flexible.

Monetary policy, the Fed mainly through the timely adjustment of the size and composition of asset purchases, or even just publish tendentious remarks, to deal with the short-term ups and downs in the economic data. Recent U.S. economic data is less than ideal, the the Fed pace again accelerated expansion table is an example. In the two weeks ended February 20, the Fed's total assets increased by nearly $ 80 billion, including holdings of mortgage-backed securities of $ 67.9 billion. The fundamental policy adjustments (such as termination of open QE), at least to greatly ease fiscal policy uncertainty will only become a reality.

Fiscal policy, on the end of the U.S. House of Representatives passed a temporary delay in the motion of the U.S. debt ceiling, the two parties in the U.S. debt ceiling negotiations have made positive progress. However, disputes between the two parties from actually will bring a severe shock, and transformed into the potential impact of several times a lesser extent. Automatic deficit reduction mechanism in March this year, officially opened the new fiscal year in April Budget vote, the U.S. debt ceiling again peaked in mid to late May, these events are being or will impact on capital market nerves. But we do not have to worry too much about the less the impact of the red mechanism automatically. This is because the automatically within the next decade, the deficit reduction plan and not substantive weaken the massive federal government spending (automatic deficit reduction amount for the fiscal year ended September 2013, only $ 42 billion, accounting for only U.S. GDP 0.26%), on the other hand on monetary policy because the Fed will take precautions to avoid the "lame duck" macro-control. Therefore, the automatic deficit reduction mechanism about to restart, but the probability will be presented in the form of a "shrink version.

   In short, the U.S. economic recovery is steady, persistent guaranteed. Such assurances from: the private sector is finally beginning to add leverage after going through a long and painful deleveraging; momentum changed and the job market to expand at a moderate pace, further helpful leverage private sector plus ongoing; shrunk version of "automatic deficit reduction mechanism for discretionary monetary policy will limit the magnitude of the government departments shrink leverage.

    The steady recovery of the American economy the Chinese economy will be affected? A critical conduction chain is clearly visible: the steady recovery of the U.S. economy the → (Fed ahead of the end of QE) → appreciated against the dollar → Chinese capital outflows accelerated → RMB assets shrink. This conduction risks seem rather distant, but in fact imminent. And fourth quarters of last year, China's capital account deficit had been a warning signal.

Maybe we'll be optimistic to think that the U.S. economic recovery, China's exports will improve naturally reduces the negative impact of the dollar appreciation on China's international balance of payments. In other words, the current account improvement might offset the contraction of the Capital Account. We are familiar with the Sino-US economic prosperity, a loss for both the pattern may be changed. In order to solve the structural problems of the U.S. economy, and re-seize the commanding heights of the global technology innovation, the Obama administration has been sparing no effort to implement to revitalize manufacturing strategy. If this strategy is successful if the U.S. economic recovery spillover effects on the Chinese economy will decline. In addition, China has in fact taken is pegged to the U.S. dollar's exchange rate system, enough institutionally flexibility in the exchange rate. Once the United States embarked on the road of a strong dollar, the RMB effective exchange rate may be forced to appreciate. This will damage the competitiveness of China's exports, the systolic pressure facing the current account.

New trends to revive U.S. manufacturing concern, the RMB is forced to follow the dollar risk worthy of attention. Steady economic recovery in the context of the U.S., the risk of deterioration of China's international balance of payments and its challenges to monetary policy, may be a significant variable in the evolution of China's macro-economic situation this year.