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Sunday, August 29, 2010

The U.S. Economic Review - August 2010

The latest numbers for the lagging US economy are disappointing. The unemployment rate is running the highest in 26 years, the manufacturing output is low, the housing sector remains fragile, and the overall Q2 2010 results have been weaker than expected. As per Reuters and University of Michigan, the August consumer confidence index has failed to recover amidst the flurry of dismal economic news from almost all the quarters. The major corporations and industry watchers have downgraded the projections for the third quarter. While the Fed chief, Ben Bernanke dismissed the fears of a further slide, maintaining that the Central Bank has enough measures to support the long-term recovery, he refused to divulge any concrete measures.
The survivors of the aftermath, like BOA-Merrill Lynch and Goldman Sachs, disagreed with Fed’s claim of a potential upturn in the last quarter of 2010. With the chances of a double-dip rising from the previous 15 percent to the 25 percent currently, the analysts are of the opinion that the Fed chief is buying time and adopting a wait & watch policy rather than charting a definite plan of action. Bernanke, in turn, talked about maintaining low interest rates for extended periods and other traditional bank measures, like buying of long-term securities, at the annual meet of the Central Banks of the world. However, he cautioned that such actions are not likely to have an immediate impact on the sagging economy. Apart from unemployment, one of the main concerns of the policy makers is to prevent the current disinflation in the US economy from spiraling down into deflation. As the US reels under the pressure of its own faulty regulatory system, it remains to be seen how the good old tenets of macroeconomics bail it out of the current crisis.

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