Indeed, recent data suggest that the pace of contraction may be slowing. The most hopeful sign is coming from consumers. Consumer spending rose in May boosted by fiscal stimulus plan. And consumer confidence has been recovering lately after reaching a bottom in February. To make things even better, retail sales, auto sales, durable goods orders, and home sales all seem to have found a bottom in recent months.
Nevertheless, it is expected that a weak labor market, declines in equity and housing wealth and tight credit conditions will weight on the recovery. In fact, during the last 16 months the U.S. economy lost more than 5.5 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, looking further the household sector upturn may be hampered by the need for households to save more to repair damaged balance sheets. More importantly, we can’t forget that fiscal pressure from the government will lead to a combination of higher taxes and lower spending.