Tuesday, January 31, 2012

Is The US Economy On A Rebound - A Recap Of The Last Quarter?

If the latest economic numbers are to be believed, the US economy may have turned the tight corner and may be on a rebound, this time flirting with growth led by durable goods not including aircrafts and automobiles. At the same time the numbers for consumer spending, business investment , forex market, and auto production all displayed positive trends allaying fears of the chances of a double dip recession. The positively inclined developments are likely to lift the growth rate to 2.4% on an annualized basis for the third quarter of 2011. For the last quarter of the year, growth in GDP could notch up to 2.5% to 3% if the economy continues to exhibit positivity. The Japan earthquake and the European debt crisis had kept US GDP growth constrained. While, the Japanese crisis may be coming to an end, the situation in Europe needs to be handled carefully else it could impact the US economy and forex trading industry further. The continued improved importance would require appropriate fiscal stimulus from the government.

The latest improvement in demand for durable goods or goods that last more than three years is a positive indicator as it suggests that consumers have started to look beyond the short term. If the trend lasts, it could be interpreted as a sign of improving consumer confidence. The demand for the purchase of new homes also seems to be on the rise. The increase in consumer spending was accompanied by a fall in savings rate from 5.1% in the second quarter to 4.5% in August. This also seems to suggest that the consumers are gaining confidence in the US economy and are beginning to let go their savings and indulging in higher spending rates as they are not as fearful about the economic conditions any longer. Fiscal incentives and a 14% fall in the value of the dollar since June 2010 has helped spur exports and keep the US economy from sagging. The US economy grew at a marginal pace of 0.9% in the first half of this year leading to the view that the US economy may be headed for a double dip. However the latest developments seem to have allayed those fears. In order to generate employment, the economy needs to grow at a rate higher than 2.5%.

The US government has been taking steps to keep the growth momentum growing. The US President has proposed a $ 447 billion Bill to create jobs, including extension of tax breaks, enhancing spending on public works and extension of jobless benefits. Other proposals also include help for refinancing of home mortgages to stabilize the housing market. The US Fed also plans to continue its super easy monetary policy by holding interest rates close to zero for some more time and swapping short term debt with long term debt. The US Fed's easy monetary policy stance is supported by low inflation at present, but the Fed could be forced to take a relook once inflationary pressures start building up.

The encouraging movement in economic indicators and the government's continued support to the economy will hopefully enhance the growth rate of the US economy and lead to accelerated employment generation, which is much required to enhance the economic outlook of the US.

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