US Economic Recovery Poised to be Weak

High unemployment, a weak housing market and budget deficits of both local and state governments may significantly slow the pace of economic expansion in the United States.

Indeed, consumer spending  which is vital in elevating production levels is still very weak mostly due to high unemployment rate. And it may take a few years to revive 8.5 million jobs lost since the recession began in December 2007 because although the labor market improved slightly in recent weeks,  most Americans are still depressed about their jobs prospect. So it's not surprising that consumer confidence unexpectedly fell in April to the lowest level in five months, according to the Reuters/University of Michigan.

To make things even worst, the biggest fiscal deficit on record combined with the anticipation of low interest rates for a long time is discouraging investors from depositing money in the United States. In fact, the US government deficit is likely to reach 10.6% of GDP in 2010 and the Obama administration is projecting that national debt will rise from 64% of national output to 77% by 2020. And the US economy may experience a significant slowdown when the Federal Reserve exits from its unconventional policy easing, and is forced to increase rates to fight inflation. In addition, we can't forget that higher fiscal deficit also means higher taxes. While this year, tax payments were lowered to stimulate the economy, next year the brakes may be allowed to expire.

Anna Fedec,
4/17/2010 4:08:07 PM