America's Recession: The Beginning Of The End

The Economist (UK) writes that new GDP figures suggest some hope for the United States of America’s economy. But the pain is far from over: "Figures released by America’s Commerce Department on Friday July 31st confirmed what most had expected: America’s economy suffered yet another quarter of falling output in the three months to the end of June. The world’s largest economy shrank at an annual rate of 1% in the second quarter. At least as of June 30th, America’s economy was still contracting, thus the country's deepest post-war recession was not over. But the news has been greeted with something approaching relief. For one thing, the decline was smaller than many economists had predicted, and a lot less than the dramatic 6.4% annual rate of contraction of the previous three-month period. For another, there are reasons to hope that conditions improved in July. And some newly released data about earlier months give reasons to cheer too. These suggest that the decline in economic activity may have bottomed out at last. The S&P/Case-Shiller index of house prices in America’s 20 largest cities rose for the first time since July 2006 in May, by 0.5%. Americans also bought more houses in June than they did in May: sales of new single-family homes rose by 11%. All of this suggests things are getting brighter in the troubled housing market."

It continues: "All this may explain Barack Obama’s comment on Wednesday that America 'may be seeing the beginning of the end of the recession'. Reaching a bottom does not mean a quick rebound in economic activity, however. The recovery is expected to be shallow and prolonged because American consumers, worried about unemployment and the collapse in the value of their homes, are seeking to reduce their debts, and thus will not spend as freely as once they did. House prices still have a long way to go before they return to the level of a year ago (let alone to their peak). The Case-Shiller index may have risen in May but it remained 17.1% lower than a year earlier, when prices had already been falling for almost a year. Another concern is that the flexibility and mobility of America’s workforce, long a strength of the economy, is limited as long as Americans find themselves unable to move home because of negative equity (when the value of a house is less than the mortgage on it). The situation is likely to persist until prices recover more. A greater worry is the bleeding in America’s labour market. Unemployment typically continues to rise even after GDP starts to increase, so pain for workers is far from over. Already 9.5% of the workforce is unemployed, and 144 of America’s 372 metropolitan areas reported unemployment rates of at least 10% in June. More jobless will probably mean less shopping and a slower recovery. The latest consumer-confidence numbers show that Americans are jittery: an index from the Conference Board, a research group, fell to 46.6 in July from 49.3 in June."