Asia Economy

US Recession Unlikely Despite Pessimism: Strategists

CNBC.com
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Despite a batch of gloomy data out of the U.S. on Thursday and widespread talk the American economy will slip into another recession, some think the pessimism is overdone.

"The U.S. is probably not going into recession," Michael Kurtz, Head of Regional Strategy at Macquarie Securities, told CNBC on Friday.

A key gauge of U.S. manufacturing - the Philly Fed Manufacturing survey- showed factory activity in the U.S. mid-Atlantic region unexpectedly dropped to minus 30.7 in August, its lowest level since March 2009 when the economy was in recession. A figure below zero indicates contraction. While the latest weekly jobless claims rose by 9,000 to 408,000 in the week ended August 12.

The data, along with Morgan Stanley's warning overnight that the United States and the Eurozone were "dangerously close to a recession," pushed U.S. stocks to their lowest level since the S&P downgrade. Asian markets followed the selloff in Friday's trade.

But Kurtz pointed to other economic indicators that were in stark contrast to the Philly Fed's data and showed the U.S. economy was not in such bad shape.

"We've had upside surprises on jobs, upside surprise recently on consumer spending, upside surprise on consumer borrowing, which I think points to household sentiment gradually improving. And, of course, a very strong industrial production number just a few days ago." he said.

Others agreed that the outlook wasn't all that gloomy, and investors are missing what's happening on the companies front.

"What's really happening is we've had 10 or 11 good quarters...(of) earnings reports from corporate America," said Art Hogan, Managing Director at Lazard Capital Markets. "You've got companies around the globe that are doing a great job of repairing their balance sheets, making profits, making smart acquisitions, buying back shares."

Hogan added: "Clearly it's hard for us to see the forest for the trees as we focus on some significant negatives that’s going to slow economic growth down in 2012, but certainly not send us in, at least in the U.S., into recession in 2012."

Kurtz believes there has been too much focus on sovereign issues and not enough credit given to the government’s efforts to prop up businesses.

"One of the things that the administration is doing is providing substantial tax incentives for corporates to actually deploy capital spending and R&D spending," Kurtz said adding that there was evidence of business spending picking up. "Businesses are actually spending on equipment."

The market selloff, Hogan points out, was overdone. And in fact, wasn't that different from what we saw in the same period last year.

"This is the almost identical selloff that we had for May to August last summer, and probably we'll end a little bit better than we're forecasting right now."