The U.S. Economy Will Recover, But Only in 2010

During the last few months, the United States real GDP fell from a cliff. However, this week the U.S. Federal Reserve Chairman Ben Bernanke told the U.S. Congress the economy is likely to pull out of recession and start growing later this year. So, what is behind the chairman’s optimistic outlook belief? Will the recovery bring relief for distressed households?

Indeed, recent data suggest that the pace of contraction may be slowing. The most hopeful sign is coming from consumers. In the first quarter of 2009, consumer spending rose by 2.2% at an annual rate and in April consumer confidence spiked significantly from February and March lows. To make things even better, in the coming months, households' spending power will be boosted by the fiscal stimulus program. Also, due to a drop in house prices and a drop in interest rates the sales of existing homes have been reasonably stable since the end of last year, and sales of new homes have firmed a bit recently.

Nevertheless, it is expected that a weak labor market, declines in equity and housing wealth over and tight credit conditions will weight on the recovery.  In fact, during the last 15 months the U.S. economy lost more than 5 million payroll jobs and job losses are likely to continue throughout 2009 bringing the unemployment rate close to 10% by year-end 2010. In addition, some indicators of business investment remain particularly weak. In the first quarter of 2009, spending for equipment and software fell at an annual rate of 30 percent following the same decline in the last quarter of 2008. And although recent business surveys have been a bit more positive, surveyed firms are still reporting net declines in new orders and restrained capital spending plans.

Anna Fedec,
5/5/2009 5:31:02 PM