No Recession Ahead in the U.S.
11-19 11:16 Caijing Magazine
Although the United State’s economy is growing at a slower rate, one should not worry about recession because the composition of the economy.
By intern researcher Onejin Wu
A senior Wall Street analyst put out a positive forecast for the U.S. economy in the short term.
Abby Joseph Cohen, the chief investment strategist at Goldman Sachs, said November 14 that she “does not see a recession near term” during a lecture held at the Brookings-Tsinghua Center in Beijing.
Cohen’s comments came amid growing concerns over the strength of the U.S. economy in the midst of the sub-prime mortgage crisis and series of bank write-downs that saw the removal of Merrill Lynch CEO Stanley O’Neal and Charles Prince at Citigroup.
Cohen said although the United State’s economy is growing at a slower rate, she was “not worried about recession because the composition of the economy.”
She said that weaknesses in the housing sector have been partially offset by the strength in other sectors, such as nonresidential construction and Exports.
According to Goldman Sachs Economic Research, the investments in the housing sector will slowdown 16.3 percent in 2007 and 15.9 percent in 2008, while Exports are expected to grow 8.2 percent in 2007 and 9.8 percent in 2008.
The performance of the private sector is another factor for Cohen’s optimism. According to Goldman Sachs Research estimates, return on equity, a measure of company’s profitability, in the United States was 20 percent in 2007 ahead of Europe’s 17.2 percent and Japan’s 10.2 percent.
“In the U.S., Companies are doing extremely well”, Cohen said.
Regarding the U.S. stock market, Cohen said “the market is priced too low.” Using the S&P 500 as the main index, Cohen thought that the fair value for the market is at 1600. The stock market was trading at 1430 on November 11 and at about 1500 on November 13. She also predicted that the market would be priced at about 1680 in the summer of 2008.
Cohen said that “the long term outlook for the U.S. economy is good because worker productivity is growing.” According to Cohen, the labor productivity in the U.S. increased by four percent in 2007, which is twice as fast as the E.U. and Japan. Cohen believes that high labor productivity is what will propel the U.S. economy ahead of other developed economies in the future.
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