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Tags: Grannis | US | China | economy

Scott Grannis: There Are Some Rays of Sunshine in the Longer-Term US Economy

By    |   Wednesday, 17 September 2014 02:20 PM

It's not all doom and gloom out there for the nation's economy. One optimistic analysis concludes a number of long-term economic measures shows the United States is enjoying a few elements of prosperity.

Scott Grannis, former chief economist at Western Asset Management, said on his blog that one particularly bright spot is the more than 30 percent decline in the prices of durable goods during the past two decades.

That decline began when China pegged its currency to the dollar and began its export push, he explained.

Editor’s Note:
New Warning - Stocks on Verge of Major Collapse

"We have China to thank for deflating the prices of most of the durable goods we enjoy these days. That's 'good' deflation, since it's not monetary in origin, but rather the result of a huge increase in the productivity of the Chinese economy which has ended up benefiting everyone all over the world."

In addition, he noted, producer price inflation — which has a key role in what consumers end up paying for goods and services — has been mostly benign since 1991, except for temporary volatility in the midst of the 2008-09 financial crisis.

"The Producer Price Index was flat in August, but up a little more than 2 percent over the past year. No sign of deflation here," Grannis declared.

According to Grannis, the recent rise of the U.S. dollar is a sign the Federal Reserve is getting ready to tighten its interest rate policy, which demonstrates strength.

"U.S. industrial production has been rising strongly for years, whereas industrial production in the eurozone has been relatively stagnant. The U.S. economy is fundamentally stronger than the eurozone economy, so short-term U.S. interest rates are very likely to rise relative to their eurozone counterparts."

Grannis said the relative outperformance of the U.S. economy has been significant in recent years, which is reflected in equity prices. "The S&P 500 has outpaced the Euro Stoxx index by 68 percent over the past five years. U.S. equities now have the added advantage of a strengthening dollar."

Finally, he professed that real 10-year Treasury yields have been in a declining trend for approximately 30 years. "This means that, in general, the effective cost of borrowing money for U.S. businesses hasn't been this low since the late 1970s."

In another bout of optimism, influential economist Ed Yardeni wrote on his blog that his analysis shows the coming earnings season is likely to reveal positive surprises to the upside over analyst estimates.

Yardeni, chief investment strategist at Yardeni Research, said a recent bout of analysts lowering their quarterly earnings estimates might be sparked by companies low-balling on their guidance, but predicted the final results could bust expectations.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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Finance
It's not all doom and gloom out there for the nation's economy. One optimistic analysis concludes a number of long-term economic measures shows the United States is enjoying a few elements of prosperity.
Grannis, US, China, economy
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2014-20-17
Wednesday, 17 September 2014 02:20 PM
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