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

In the first three months of 2009, the U.S. Gross Domestic Product declined by an annualized rate of 5.5 percent. Yet, although the last two quarters have been the weakest in 51 years, we can see some improvement in the economy.

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.

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Comments

[Ferdinand E...:]

Seems to be all bad and no good in this article, but if a real recovery is in sight by the end of 2010, I think that the TV audience should feel good.

Jul 09 09:08 AM

[Lars39:]

Since 2010 is a mid term election year, you can be certain that the government-media complex will trumpet a recovery whether we have one or not.

Jul 09 09:31 AM

[a. palmer jr.:]

The politicians will paint it over as recovery just before election time but there's no way to pay back the stimulus debt probably in our lifetime because we can't stop government from spending! If we could ever reel in the congress, especially the senate, we would have a chance at recovery, but they're running the show and they're the cause of the problem in the first place with their deficit spending for years. I think they should work at being energy independent but they're getting off the track with all this "green" crap.

Jul 09 09:32 AM

[Old Trader:]

Ms. Fedec,

I wish I could share your confidence. If you're correct in your assumption/prediction, I'd think it could be a late as Q4 in 2010.

Going over your list of items that guide your thinking, consumer confidence is probably the most nebulous. I suspect that the rise is/was primarily fueled by the rebound of the market. Should there be a substantial retracement, I think confidence would melt like the snow of a late spring snowfall.

Granted, some amount of a rebound in spending was unavoidable, as things wear out, and seasons change (clothing and other soft goods), which, imo, is what's behind any upticks in mfg./orders, since businesses have been running as lean of inventories as they can expect to get away with.

Auto sales will show some recovery as a result of the "Cash for Clunkers" program, but I'm afraid it will merely canabalize forward sales, and in any case, its a "one shot" deal. The same is true of the housing stimulus.

Unfortunately, when all is said and done, whenever the "recovery" DOES arrive, I'm afraid it will be a "recovery" only in the eyes of economists, rather than the man/woman in the street.

Jul 09 06:54 PM