The household balance sheet remains the primary concern with regards to the economic recovery. The latest data from the Federal Reserve on consumer credit showed the first expansion in credit in 12 months. While many view this as a positive I remain skeptical of the sustainability of the recovery. Total consumer credit expanded to $2.46T in January. Unfortunately, this is exactly what the consumer shouldn’t be doing right now and substantially increases the risk of a stimulus withdrawal resulting in a double dip in 2011 or 2012. At the same time we are beginning to see signs of life in consumer sales – another potentially negative omen for the wobbly recovery. While all of this might appear to be a positive at first glance it substantially increases the risk of a double dip . Allow me to elaborate. Fitch recently reported that the charge-off rate for prime credit cards remains at its highs: Fitch Ratings-New York-03 March 2010: U.S. credit card charge-offs surged to near record levels set last fall, according to the latest Credit Card Index results from Fitch Ratings.
Despite a series of economic reports pointing to a continuing anemic recovery, Research Affiliates founder Rob Arnott believes the odds of a double - dip recession remain above 50%.
China has been and remains the strongest leg of the economic recovery. While most other countries remain entangled in a weak recovery or no recovery at all, China’s economy appears to have surged back to its pre-crisis growth rates. But as the old saying goes, if it seems too good to be true it probably is. At the beginning of the year we described China as one of our “5 biggest risks” of 2010 . Last week we mentioned (see here) the risks in the Chinese economy appear to be mounting as property prices surge and inflation begins to rear its ugly head. Well, it looks as though we’re not the only ones who are concerned about the sustainability of the Chinese economic recovery. According to Westpac Bank in Australia the leading economic indicators in China are beginning to roll over: “Back on the 11th Feb we noted ‘Chinese data set to slow, but not abruptly’. Four weeks later, we wonder whether a more apt title might have been ‘Chinese data set to slow, abruptly’