AMEX Chief Sees 2nd Half Recovery…2nd Half of 2010

Don’t pop those champagne corks just yet folks, American Express CEO Kenneth Chenault doesn’t see any measurable improvement in the economy until at least the latter part of 2010.

Chenault bases his forecast partially on his company’s rate of card billings. While the billings rate remains in double-digit declines from previous periods, it appears to be leveling off. Hopeful signs of economic stabilization? Perhaps – which taken alone is certainly good news – but not the “green shoots” economists and policy wonks hope to find as they continue to sift through economic data.

What might this mean? One simple explanation – people aren’t consuming at the rate they used to, or are using cash to make their purchases (or both). Says Chenault, “I think one of the permanent changes that we are going to see is that people in the United States will save more and I think that is constructive.”

This is certainly true – US personal savings rates have traditionally been lower than other Western economies. But if US households are keeping a larger portion of their income aside in savings, and rebalancing balance sheets by cutting back on discretionary purchases, that money won’t be cycled back into the economy for some time. Remember, a sizable chuck of the 2003-2007 economic expansion was driven by consumer purchases (financed on debt of course, but that’s another post). If this current pattern represents a dynamic shift in behavior as Chenault believes, then that V-shaped recovery suddenly becomes an L-shape, or worse.

Also, keep in mind that Chenault’s customers are more affluent than the average American. As calls for taxing the wealthy to pay for everything from health care to clean air increase, their repercussions will more than likely be felt in a decrease in personal consumption expenditures that will draw that billings rate down even further. Bush’s “jobless recovery” will become Obama’s “phantom recovery”.