The Daily Ticker Blog

One Headwind Could Still Stymie US Recovery

Morgan Korn

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U.S. companies have in general reported better-than-expected profits for the third quarter. Yet some of the biggest U.S. multinationals are exhibiting signs of weakness, prompting concerns that dark times are coming.

Dupont, 3M and Xerox all missed Wall Street estimates. Caterpillar, the world's largest construction and mining equipment maker, warned investors to anticipate lower profit and revenue for the rest of the year. Clothing marker VF Corp. fell short of analysts' revenue projections.Dunkin' Brands lowered its revenue guidance.

These lackluster earnings could be viewed as outliers or confirmation that the U.S. economy is falling back toward recession territory. The economy has shown in recent weeks its resiliency — new homes sales grew 5.7% in September, the highest level in nearly two and a half years. The unemployment rate fell to 7.8% last month — the first time it has slipped below the 8% mark in nearly four years. Retail sales jumped 1.1% in September, beating analysts' forecasts. Consumer sentiment in October surged to its highest point since September 2007.

Related: Global Recession Ahead in 2013, Says Gary Shilling

As The Daily Ticker's Henry Blodget and Aaron Task discuss in the attached clip, U.S. household debt could be the one headwind truly preventing a sustainable economic recovery. According to the Federal Reserve Bank of New York, U.S. households have reduced their debt by $1.3 trillion between June 30, 2012 and the third quarter of 2008. But debt levels are still higher than they were before the financial crisis and 30 million Americans have on average $1,500 of debt subject to collection.

Related: Why New Federal Rules for Debt Collectors Don't Go Far Enough

Americans are continuing to pay down their financial liabilities and obligations by borrowing less and cutting expenses — even as their wages remain stagnant. Average hourly earnings dropped 0.3% from August to September, according to the Bureau of Labor Statistics. From September 2011 to September 2012, average hourly earnings fell 0.2%.

Moreover, Americans have become debt-averse. Gen Y'ers may be inclined to take out loans for college and graduate school, but a large percentage of young working adults are shunning home ownership. The housing market has rebounded because of record-low mortgage rates and a decline in home prices but an important group of buyers — first time buyers — are missing from the equation. Low-wage jobs (or lack of them), high student loan bills and a general malaise about the economy have persuaded many young Americans to live at home.

Related: The 'Mortal Enemy' of Home Prices: Excess Housing Inventory

President Obama and his Republican challenger Mitt Romney are trying to assure voters in these critical last few days that their specific plans will boost growth and bring back prosperity. The nation has lived through a financial crisis, a housing crash and a global recession in four years. The world will soon find out which policies Americans believe are best for their future.

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