Saturday, August 30, 2008

The US Economy Growth Mirage

From CNN Money:

NEW YORK ( -- Despite all the talk about the U.S. economy falling on hard times this year, the economy grew at a more solid pace during the second quarter.

According to an update to the second-quarter gross domestic product report released by the government Thursday, the economy grew at a 3.3% clip, up from the 1.9% annual growth rate first reported last month. Economists surveyed by were expecting GDP to be revised up to 2.7% in the quarter. The GDP is the broadest measure of the nation's economic activity.

But that doesn't mean that the United States has avoided a recession, some economists say. In fact, there are growing concerns that weakness will extend through the rest of this year and even into 2009.

"My feeling is that the recession started in the fourth quarter of 2007," said David Wyss, chief economist with Standard & Poor's. "I think the worst quarter will be the first quarter of 2009, which would make it a long recession."

But many economists say temporary factors, such as the more than $90 billion in economic stimulus checks that reached taxpayers during the quarter, make the jump in the second quarter an anomaly.

Among the factors behind the likely upward revision to growth in the second quarter: more business inventories than originally estimated and improved trade figures.

The US economy has been hanging tough since the sub-prime broke out last year, partly owing to strong overseas demand for its goods. Unfortunately, high crude oil price rippled into emerging economies. High inflations threaten the original thesis of rising middle class in emerging markets as food and energy are a big chunk of their personal consumption expenditure basket. So this decoupling theory does not looking too good for now. From decoupling soon to coupling again, thanks to the excess liquidity originated from the US drove the worldwide inflation sky-high.

In the US, the initial claims stood as high as 2001 dot-com bust recessions. Without job, it will be difficult to sustain spending.

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