October 27, 2011

Basement Thesis: Auto Sales More Likely to Rise Than Fall According to BNY Mellon's Hoey

Outlook for Global Economy Depends on Severity and Duration of European Financial Stresses

LONDON and NEW YORK, October 27, 2011 — Many key cyclical sectors are still depressed and appear more likely to rise than fall, pointing to a "basement thesis" in autos, capital spending and housing according to BNY Mellon Chief Economist Richard B. Hoey in his October 2011 Economic Update.

In sharp contrast to the usual pre-recession condition, auto sales have recovered only from the "sub-basement to the basement" and Hoey believes that this vulnerability to a substantial decline is limited.

"We believe that U.S. auto sales are more likely to rise than fall," says Hoey.  "A similar 'basement thesis' applies to other cyclical categories, notably capital spending.  Housing is a special case, still stalled at a sub-basement level, with residential investment as a share of GDP now severely depressed."

Turning to the economy worldwide, Hoey believes that the outlook for the global economy depends crucially on the severity and duration of European financial stresses.  

"We expect neither a disorderly financial meltdown nor a clean orderly resolution of these stresses," Hoey says.  "Given the slow speed of European decision-making by various policymakers, we expect a semi-orderly stop-and-go process which averts the worst-case outcome but reduced European financial stresses only gradually over time."  

See http://www.bnymellon.com/foresight/update-video.html for Hoey's complete October 2011 Economic Update.  

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