US economic recovery remains sluggish

Sluggish? 当然でしょう~!





The US economy grew at an annual rate of just 2 per cent in the third quarter, cementing the case for a new round of monetary easing by the Federal Reserve when it meets next week.

In what will be a pivotal week for the US economy, the central bank is now poised to commit to a new programme of quantitative easing – so-called QE2 – on Wednesday, the day after midterm elections to Congress.

Market reaction to the elections and to QE2, which may involve the Fed buying $500bn of Treasury bonds in an effort to lower long-term interest rates, will play a key role in determining whether the recovery picks up pace or continues to stutter.

Growth accelerated from the 1.7 per cent reported for the second quarter, according to the Bureau of Economic Analysis on Friday, but it was still too weak to put a dent in America’s 9.6 per cent unemployment rate.

“We are doing better but we are not doing well,” said Neal Soss, chief economist of Credit Suisse in New York, who said the report demonstrated why the Fed was considering a further stimulus.

The brightest spot was a 2.6 per cent annualised rise in consumption, the fastest rate of growth since 2006, but one that will be hard to sustain unless employment and wages rise so that consumers have more money in their pockets.

“Consumption just can’t outgrow incomes for a long period of time under these conditions,” said Paul Ashworth, senior US economist at Capital Economics in Toronto.

Growth in business investment slowed down and a tentative recovery in housing investment fizzled out after the expiry of a tax credit for house buyers.

The data suggest the Fed will have a mountain to climb in its efforts to stimulate the economy because consumers are still concentrating on saving to compensate for falling house values.

As a result many economists now question how much QE2 can do to boost demand even if it succeeds in pushing down long-term interest rates.

“We’ve got a recovery that’s got so many constraints on it,” said Paul Ballew, chief economist of insurance company Nationwide. “Monetary policy is not going to be the magic bullet to fix all of the ills.”

“The sums we’re talking about [for QE2] are not going to make any meaningful difference given the headwinds,” said Mr Ashworth.

The growth numbers offered little relief to the Democrats ahead of Tuesday’s midterm elections. They are trailing in opinion polls because of the lack of progress on unemployment.

President Barack Obama, speaking from the Stromberg Metal Works plant in Beltsville, Maryland, said the figures reflected “nine consecutive months of private sector job growth, after nearly two years of job loss”. He said his administration was working to accelerate growth and touted a proposal to give tax relief to businesses. “Political season is going to be over soon. And when it does, all of us are going to have a responsibility, Democrats and Republicans, to work together wherever we can to promote jobs and growth,” he said.

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