The U.K. Could Foreshadow the U.S.

Saturday's Wall Street Journal had a headline which said: "U.K.'s Recovery Slows Amid Sluggish Spending". The article discussed how the United Kingdom's speedy recovery was fizzling as banks still aren't helping businesses invest and consumers still aren't spending enough to spur faster growth. It appears that the U.K. has been moving in sync with the United States as rallies in stocks, bonds , and sterling were driven by positive data for retail sales, home prices, and manufacturing orders. "Optimism about an economic turnaround had surged in recent weeks. But in retrospect, many of those indicators may have been based on temporary factors such as warm weather that lured consumers to shops during Easter, boosting April sales". Manufacturing increases also generated enthusiasm for a recovery but when speaking to business executives, it appears that "businesses are restocking after running down their inventories during the last lean year.

Credit conditions in England remain tight and a "potential significant obstacle to recovery prospects." "If there are green shoots, the banks are cutting them down." "Creditless recoveries are possible but past recessions show such rebounds are typically weak. The biggest factor in past turnarounds globally has been an increase in consumption" but suggest demand is missing in the U.K. and globally. The United Kingdom, like the U.S., had a decade of debt-fueled shopping. The weakened consumer is more focused on reducing debt and saving than he is in spending. This will obviously lead to a tempered recovery.

The United Kingdom's story seems to us to be a mirror image of the economic situation in the United States. It is only a matter of time until we see headlines in the U.S. which will be saying the "U.S. recovery Slows Amid Sluggish Spending."