by Russ Koes­terich, Chief Invest­ment Strate­gist, iShares

As the iShares global chief invest­ment strate­gist and a found­ing mem­ber of the Black­rock Invest­ment Insti­tute, I have the oppor­tu­nity to work with world class investors through­out the firm and access their research and work, includ­ing a recent Insti­tute paper “From Keep­ing Up with the Jone­ses to Keep­ing Above Water: The Sta­tus of the US Con­sumer.”

The paper weighs in on the debate regard­ing whether the US con­sumer can help fuel a recov­ery and argues that no, con­sumer spend­ing is not likely to help. This is because the US con­sumer faces many head­winds includ­ing mas­sive debt, a weak job mar­ket and stag­nant income, not to men­tion the pos­si­ble curb­ing of trans­fer pay­ments as the gov­ern­ment tries to get its fis­cal house in order.

But what I found most inter­est­ing in the paper, and wor­thy of shar­ing in a quick post, was the idea in the con­clu­sion that the US recov­ery today is a Catch-22.

Here’s the gist. With the con­sumer sec­tor unlikely to fuel a US recov­ery, that leaves the cor­po­rate sec­tor as the engine of growth. At first glance, this would seem to be a safe bet. As I men­tioned in early Sep­tem­ber, the sil­ver lin­ing of today’s slow growth envi­ron­ment con­tin­ues to be the strong finan­cial posi­tion of many US com­pa­nies. Cor­po­rate mar­gins are at record highs and lever­age lev­els are near record lows.

But here’s the catch: The domes­tic cor­po­rate sec­tor relies on the US con­sumer. To con­tinue grow­ing over the next few years, com­pa­nies need con­sumer spend­ing to pick up. But of course, such an upswing in con­sumer demand is unlikely to hap­pen in the near term because of all the head­winds fac­ing the US con­sumer (think those men­tioned above). This leads us to “the great eco­nomic Catch-22 of our time,” as the Black­Rock paper’s con­clu­sion describes the situation.

So, where does that leave the US recov­ery? One idea floated in the paper is that spend­ing on US goods by for­eign con­sumers could help cor­po­ra­tions be the needed growth engine. But as the paper notes, exports are unlikely to grow enough to com­pletely make up for lower US con­sumer demand. As a result, in my opin­ion, this prob­lem­atic sit­u­a­tion is just more evi­dence that the US recov­ery is likely to be a long slog, char­ac­ter­ized by lack­lus­ter growth.

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