Is the US Economic Recovery Sustainable?

A rebound in domestic demand is among the most important pillars of a sustainable recovery. Yet, although it looks like the worst of the recession in the United States is over, at Trading Economics we think that a rising unemployment rate is likely to weaken household spending and temper an upturn in growth, stocks and commodities.

Indeed, since the downturn began in December 2007, the US economy has lost 6.5 million jobs, making it the biggest employment slump in the last eight decades. And it is widely expected that the job losses will continue throughout 2009 bringing the unemployment rate close to 10% by year-end 2010 hampering further the expenditure.  Moreover, several economic indicators point to weak consumption going forward. For example, consumer confidence fell more than forecast in July and retail sales were down 4.9 percent from year earlier in June. Moreover, the prospect of a worsening economic situation is prompting many businessmen to save more money and invest less. Indeed, durable goods orders and car sales are far from pre-crash levels. More importantly, the effect of a massive fiscal stimulus will eventually fade bringing spending further down. Adding to that higher taxes driven by fiscal pressure and we can forget about sustainable recovery for some time.

Anna Fedec,
7/29/2009 6:41:05 PM