subject: Growth In Us Economy - A Glimmer Of Hope For The Us Economy [print this page] In the midst of chances of the US economy going into a double dip recession and experiencing deflation, came a glimmer of hope, with US factory output growing 1.1% in July over the output in June. The growth was the fastest in a year and was a key economic parameter, the growth in which provided some relief to policy makers in the otherwise gloomy economic environment.
However, as a matter of abundant caution it may be noted that the July growth figures come on the base of June figures and in the month of June US factory output including that from mines and utilities fell by 0.1%. Also, it may be noted that the surge in July is more based on a rise in car production. Analysts suggest that the July growth number is more like a statistical anomaly and does not indicate any much of a strong revival.
The US housing market continued to be sluggish, with single family home construction falling 4.2% and new building permits dropping 3.1%. Construction of new small apartments increased 1.7% in July as per the US Commerce Department. However this represents a very small proportion of the housing market. A sustained growth in the housing sector is important for the US economic recovery as it was the trigger of the ongoing economic slump. A pickup in demand for new homes will provide the indication that employment is picking up in a sustainable way and people are venturing out to buy new homes and not hoarding cash due to economic uncertainty.
At this point of time, consumers are conservative and are spending less and saving more. The job market uncertainty makes consumers less daring and more conservative. Those wanting to buy homes are more interested in deep discounted homes up for sale due to previous owners defaulting on their mortgage payments. The sluggish economic recovery in the US has also led to a buildup of oil inventories in the US, which is the largest consumer of energy. This has led to a dip in oil prices. A dip in oil prices will automatically reduce the returns to oil producing nations in the middle-east and others like Nigeria and Venezuela. Effectively, oil prices are acting as a virus to spread the poor economic performance in the US to other regions.
During this period of recession, the US dollar has stayed buoyant, mainly due to its role as a currency hedge. In the absence of an alternative, investors have sought the shelter of the US dollar and forced it to maintain its strength. But, the strength of the US dollar was based on the resilience of the US economy. With the US economy having weakened considerably and the nation's internal and external debt at substantially high levels, the inherent strength of the US dollar is under question. Moreover, a weaker dollar is likely to encourage exports from the US, which can boost the economy. Thus, at some point in time, the US may actually give up on its strong dollar policy and the dollar may actually be allowed to weaken gradually.
Thus, all is dependent upon the US economy and its strength. Hopefully, the unexpected growth in factory output will continue to demonstrate strength in the coming months and other economic indicators will also improve and pull the US economy out of its present sluggishness.
by: Cedric Welsch
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