Posted by Joseph Y. Calhoun, III

PIMCO has put forth the prediction that the US economy faces a period, which they call the New Normal, of slow growth, high unemployment and low inflation or near deflation. Of course, as the largest bond manager in the world, that would be fine with Bill Gross and Mohammed El-Arian, but is it really what we should expect? I don’t think so and penned a piece (or is it pixeled?) called The Great Global Rebalancing back in August that layed out a vision for US growth:

I can envision a rebalancing of the world economy that is beneficial to all. The Chinese will increasingly invest their surpluses in emerging economies resulting in the further development of those countries’ middle classes. Consumption in the emerging economies is already 65% of the US and could surpass the US in the next few years. This emerging market consumption along with increased Chinese consumption will keep Chinese and other Asian economies factories humming and their economies on track. Australia and Canada, along with other resource rich countries will provide the raw materials for this production.

The US also has a role to play in this emerging order. The US, despite what most seem to believe, is still the world’s largest manufacturer and third in world exports. US manufacturing is concentrated in the production of capital goods which should benefit from the expansion of the emerging market economies. The US technology sector is the undisputed world leader and should benefit. We also lead the world, by far, in the development of medical devices and pharmaceuticals. The US is also a large exporter of agricultural products which should also be positively impacted by the expansion of the emerging market middle class. Finally, US is home to some of the world’s most recognizable brands such as Coca Cola, Proctor and Gamble and Visa,  and they should also benefit from the diversification of consumption to the emerging world.

Now Joe Carson, chief economist at Alliance Bernstein, has coined a term for this rebalancing of the US and world economy:

March 8 (Bloomberg) — The “new mix” is out to topple the “new normal” as the paradigm for America’s economic future.

The 5.9 percent annualized surge in fourth-quarter growth — the fastest since 2003 — was powered more by exports and business investment than the traditional drivers of consumption and housing. This new mix of demand will boost the economy by 3.7 percent in 2010 and pave the way for 3.5 percent annual average increases thereafter, said Joseph Carson, an economist at AllianceBernstein in New York, who coined the phrase.

His forecast contrasts with the 2 percent rate penciled in for later this year and the longer term by new-normal proponent Mohamed El-Erian, chief executive officer of Newport Beach, California-based Pacific Investment Management Co., who argues that growth will be depressed by consumer retrenchment and financial regulation.

“What’s going to change is how we generate growth, not how fast we can grow,” Carson said in an interview. “That’s how I come up with a new mix rather than a new normal.”

This “new mix” is already apparent in the US economy. It is manufacturing that is leading the way out of recession and consumption that is lagging. One reason a lot of investors have been skeptical of the stock market rally is that this recovery is unlike the previous two recoveries. It is more traditional, based on inventory rebuilding and exports, but it is a recovery nonetheless. Consumption will recover too but only as employment and income recover. That may take a while since US productivity is still rising but it will happen.

Carson’s thesis is interesting and of course I like it since it conforms with how I view the world. And since I picked on PIMCO for talking their book, I would be remiss if I didn’t do the same for Alliance Bernstein and Carson. AB is after all primarily an equity manager and as such would benefit from a more robust US recovery. Anyway, read the whole article at Bloomberg.