Is the US economy on the slope's edge?

A Hot Tip about Economic Trends/Outlook in the United States

Last updated: 5 Feb 2011

There is no doubt that the US economy has been shaking for the last 9 years due to many circumstances whether political or economical.
However the last financial crisis in 2007 has put the American economy in “fragile” situation, where the economy has been undergoing weakness and instability.
Politically, the main factors that caused that weakness are the “wars against terrorism” launched in 2001 and the services and funds of such wars and mission.

Secondly, the immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006, where between 1997 and 2006, the price of the typical American house increased by 124%. This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation.

In addition the many financial policies and conditions such as credit conditions, and lending and the scandals of corruption and “funds misuse” were accumulated and increased the risks and the collapse. All of these factors have prepared a “soft land” for the financial crisis that put the real estate business in uncertainty, and caused a high rate of unemployment.

The financial crisis of 2007 to the present is a crisis triggered by a liquidity shortfall in the United States banking system. It has resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.

The collapse of the housing bubble, which peaked in the U.S. in 2006, caused the values of securities tied to real estate pricing to plummet thereafter, damaging financial institutions globally. Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st century financial markets.

Based on the pulse of economies report on Thursday October, 7, and as one day separates us from the end of this weeks trading sessions, the U.S labor sector is still under the spotlight as today holds the release of the weekly jobs report, while noting that Friday holds furthermore crucial data represented in the Jobs Report as it will reveal the performance of the Labor sector during September.

Investors were given some clues that might help estimating tomorrow's Jobs Report, the clues are represent ted in the ADP Employment Change gauge as it showed that the private sector has shed thirty nine thousand jobs during September which was a surprise as markets expected the private sector to add twenty thousand jobs.

There is no doubt that the Labor sector is the most damaged in the U.S economy as unemployment rate stands at the excruciating 9.6% and expected to reach 9.7% making it a really hard obstacle to surpass and achieve recovery.
As for today's weekly jobs report it is expected that Initial jobless claims climbed 2 thousand to reach 455 thousand for the week ending in 2nd of October, as for Continuing claims fell 7 thousand to reach 4450 thousand claims during the week ending in the 25th of September.

Yesterday's announcement by the International Monetary Fund of downgrading the U.S GDP growth expectations came down harshly on the investors' sense of optimism, but to be fair it did not come out of the blue as the U.S economy reported during the second quarter weak indicators in all sectors except the Housing sector, the IMF downgraded 2010's growth estimate from 3.3% to 2.6% as for 2011's growth estimate it was downgraded from 2.9% to 2.3%.

The IMF* commented that the U.S recovery did not stall it is just moving in more moderate paces than expected, explaining that the U.S economy will need more time in order to recover from the worst crisis that has hit it since the great depression.
The U.S economy needs to revitalize Income and spending and also needs to create job opportunities in order to achieve recovery as soon as possible, should those three factors stay in the awful status they are currently in, investors should rule out soon recovery.
Last but not least on today's U.S calendar in the Consumer Credit gauge regarding the month of August where markets expect the deficit to shrink slightly and $3.5 Billion when compared with the prior deficit reported worth $3.6 Billion.


*IMF: International Monetary fund is the intergovernmental organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments
 


Posted: 04 February 2011, last updated 5 February 2011

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