The US economy is still struggling FT.comPublished: August 14 2009 18:54 | Last updated: August 14 2009 18:54
Is the worst over for the US economy? Some recent figures point that way, and much US economic commentary is growing cautiously optimistic. For the moment, though, the emphasis needs to stay on caution not optimism.
Certainly, the economy is levelling off: output is no longer in free-fall, and unemployment is no longer growing at post-war record rates. But it is unclear whether the bottom for output has quite been reached. Once it has, growth may be slow for some time. As for jobs, whatever happens, unemployment is likely to rise further before it falls back to more normal levels.
If things are still getting worse, albeit much more slowly than before, one can hardly argue that the worst is over, only that the rate of decline has moderated. And since unexploded ordnance still litters the financial landscape, one cannot be sure that there will be no more sudden setbacks.
This week the Fed did sound a little more cheerful. It said that the longest period of US economic decline since the Great Depression was coming to an end, prompting speculation that the recovery has begun. But the central bank also left its benchmark interest rate at zero, and said it would stay there “for an extended period”. That monetary stance seems right – but one can hardly call this an expression of confidence.
The headline unemployment rate fell in July from 9.5 to 9.4 per cent, welcome news that was widely noted. But the monthly rate of job losses – about 250,000 in the private sector, down from more than 600,000 at the beginning of the year – was still at the high end of the range for a normal recession. The unemployment rate dropped because more than 400,000 workers dropped out of the labour force altogether, and are no longer looking for work. The labour market has not yet turned the corner.
An even more sobering statistic was the number of mortgage foreclosures in July. At 360,000, it set a new record. In the first seven months of the year, notices of default, auction or repossession totalled 2.3m. The still-crippled housing market, and the damage it has inflicted on the net worth of US households, continue to depress the prospects for the recovery in consumer spending on which everything else depends.
Normally, the faster the downturn, the more vigorous the recovery. A few economists expect that pattern to hold this time, but most do not. Continuing stresses in financial markets, the fear that there may be shoes to drop in other sectors, and the lingering effects of the crash on households’ income all suggest the recovery may be sluggish even by normal standards, let alone compared to the slump that preceded it.
The US economy is still desperately weak and will most likely continue to struggle for months.
Saturday, August 15, 2009
The US economy is still struggling
The stock market must be an extremely leading indicator... judging from these indications.
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