Pimco: Joblessness, Housing to Choke U.S. Growth

Monday, 03 May 2010 12:33 PM

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Growth in the United States will slow to a crawl amid a dismal outlook for lowering the unemployment rate and a lackluster housing market, said Pacific Investment Management Co. executive Neel Kashkari.

Gross domestic product, or GDP, in the United States will likely average only from 3 percent to 4 percent compared to the current rate of 6 percent to 7 percent, Kashkari, the head of new investment initiatives at Pimco, said at a Singapore investor conference, Reuters and Dow Jones reported.

“Unemployment at around 10 percent is going to remain high in the foreseeable future and then come down only slowly as the global economy recovers,” he said.

Kashkari, who ran the $700 billion TARP program for former U.S. Treasury Secretary Hank Paulson, said home ownership will decline to only 63 percent from the current rate of 69 percent.

“If you look at the forecasts for the U.S. fiscal situation, it gets worse and worse and worse. We in the U.S. are going to be forced to ... take action but we don't yet know what form that action is going to take,” he said.

Pimco, the world’s largest bond fund manager, plans to diversify into equities, Kashkari said.

Confidence in a recovery appears to be increasing as stock and oil prices have risen along with corporate earnings, Bloomberg reported.

“The tide of rising earnings and improving economy is just more important than some of the late distractions," said David Kelly, who helps oversee $445 billion as chief market strategist for JPMorgan Funds in New York.

"Germany is the most important player within Europe. If you see a rebound in German confidence, that makes you feel better about the European recovery and that is positive for U.S. companies.”

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