How Much Longer Can the U.S. Avoid Recession?

So far, the United States economy has managed to avoid the recession label. In fact, GDP growth in second quarter of 2008 was better than widely expected. But how much longer can the economy resist to several housing, financial and commodity shocks?

Indeed, housing has been a drag on U.S. growth for more than a year. For instance, home prices are down about 16% from their recent peak and residential investment has plunged to only 3.2% of GDP.  Moreover, the effect of $92 billion tax rebate is slowly fading off.  Yet, the only hope for the U.S economy may be its foreign sales. So far, a weak dollar has been helping the American companies to compete in foreign markets. For example, in the first quarter of 2008, net trade added more than one percentage point to GDP growth and in the first five months of 2008, export volumes rose by 10.1%. Nonetheless, even cheap dollar may not be enough in the face of global slowdown and rising inflation. Several U.S. trading partners are struggling as well and excessive inflation is forcing central banks in emerging markets to tighten monetary policy which cuts demand for imports.

Anna Fedec,
7/27/2008 9:32:53 AM