News Column

Fitch: Current U.S. Recovery Tests Historic Relationships

May 14, 2014



NEW YORK--(BUSINESS WIRE)-- Interest rates and fiscal spending will likely play a diminished role in the U.S. recovery going forward - despite being key factors in other major economic recoveries in the past - while other factors will need to take over to spur the economy ahead, according to a new report from Fitch Ratings and Oxford Analytica.

In an effort to better understand the dynamics at play in the U.S.'s prolonged and relatively sluggish economic recovery, five significant expansionary periods for major economies over the last 40 years were examined to identify common catalysts of sustainable recoveries.

'Conventional wisdom assumes certain patterns to economic recoveries based on 40 years of global boom and bust in the U.S., Europe and Asia. But this recovery seems different,' said John Olert, Chief Credit Officer at Fitch. 'While we've seen some recent momentum on payrolls, one significant deviation from prior recoveries is labor participation, which at 63%, is the lowest in over 30 years. Prior U.S. recoveries saw stronger employment gains and rising, not falling, labor participation rates.'

Two key factors in historical recoveries - interest rates and fiscal stimulus - appear unlikely to spur growth rates further.

Unlike during past recoveries, U.S. interest rates, while at supportive levels, have already been at, or near, historic lows for several years, and are potentially headed higher. Fiscal stimulus, which initially rose sharply to stimulate recovery, has declined significantly due to budgetary realities, neutralizing its role as a growth accelerant.

The current U.S. economy shares several of the positive factors identified as growth catalysts in recoveries in Japan during 1975-1991, Germany during 1983-1991, the UK during 1994-2007, and the U.S. from 1983-1989 and 1991-2000, with still other factors being difficult to call directionally.

The wealth effect and increasing confidence in general may be a significant near-term growth factor supported by the housing recovery and a strong equity market. The U.S. may also benefit longer term from improvements in technology, including the energy boom, and global competitiveness and trading relationships in the form of new on-shore production supported by the U.S.'s educated workforce and reduced energy costs and exports.

While export volumes have grown and the trade deficit has fallen during the recovery, volumes last quarter fell appreciably, and weak prospects for some trading partners and geopolitical concerns represent key risks.

For more information, a special report titled 'Mapping a Subpar Economic Recovery: What Can History Tell Us?' is available on the Fitch's web site at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Mapping a Subpar Economic Recovery: What Can History Tell Us?

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747188

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

James Batterman

Managing Director

+1-212-908-0385

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Bill Warlick

Senior Director

+1-312-368-3141

or

Media Relations

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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