US economy in focus: Is a new recession ‘inevitable’?

Stars and Stripes Forever 1As XpertHR’s April 2012 economic commentary notes, the global economy – not just the UK – finds itself in a precarious position in 2012.

Prospects for the US economy are critical to the fortunes of the global economy. Here, we present a brief overview of the current state of the US economy and some of the challenges it faces.

US recovery roars ahead…

At first glance, the US economy appears to be faring significantly better than the UK.

“America is already growing again,” the Economist notes. The US economy is posting strong growth, with GDP expanding by 3% in Q4 2011 alone, according to latest official data. The US unemployment rate was 8.2% in March 2012, “little changed” on the figure for February 2012.

…but could US recovery be about to grind to a halt?

However, as is also the case in the in UK, the US recovery is precarious. Federal Reserve Chairman Ben Bernanke warns that the US economic recovery is incomplete and prone to risk.

Indeed, some commentators are concerned that the current levels of growth enjoyed by the US cannot be sustained, with the most pessimistic warning that a new recession could be in the offing:

  • “A new recession is inevitable” for the US economy, argues Lakshman Achuthan of the Economic Cycle Research Institute (ECRI), which has a strong record of predicting recessions. CNN says: “Achuthan predicts the recession will happen even without a new shock to the economy, such as a spike in oil and gas prices or a Greek sovereign debt default sparking a financial meltdown. If those things occur, he says they will simply make an inevitable recession more painful.” This “would be a new recession, not a double-dip.”
  • Rising oil prices and weak global growth represent potential “headwinds” for the US recovery, says New York Federal Reserve head William Dudley.
  • A weak property market means that the US recovery could stall in the coming months, according to Robert Reich, writing in the Guardian. Reich identifies this as “the central paradox at the heart of the American economy today.”
  • It is unlikely that recent falls in the US unemployment rate can be sustained without a recovery in demand, according to the Federal Reserve Chairman Ben Bernanke. He says: “What we may be seeing now is the flip-side of the fear-driven layoffs that occurred during the worst part of the recession, as firms become sufficiently confident to move their workforces into closer alignment with expected demand for their products.”

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