U.S.' economic decline seems to be moderating

The U.S. economy seems to be slowly recovering from its steep dive, though consumer spending could delay any significant recovery, according to The Washington Post.

A report released by the U.S. Department of Commerce July 31 showed the economic downturn eased in the spring; economic output shrank at a 1 percent annual rate during the April&$151;through—June period compared with 6.4 percent at the beginning of the year. The improvement stems in part from an 11 percent increase in federal government spending and a more modest 7 percent decline in exports compared with 30 percent in the first quarter.

Additionally, stocks have been soaring, with Standard & Poor's 500-stock index rising more than 7 percent in July.

Businesses have been cutting to the bone and pulling back on investments, which could lay groundwork for expansion in coming months. "Businesses have made substantial progress in adjusting their costs, inventories and employment during the past few months," says Bruce Kasman, chief economist for J.P. Morgan Chase, New York. "That suggests we're setting ourselves up for improvement into the second half of the year."

Analysts expect an increase in gross domestic product in the second half of the year from the end of the housing bust; residential investment has fallen for 14 consecutive quarters. However, the optimistic forecast depends on a steadier job market and greater consumer confidence.

Consumers, who account for about two-thirds of economic activity, currently still are reluctant to buy; the consumer confidence index fell in July for the second month after rising sharply in the spring. People are avoiding big-ticket items and seem to be saving rather than spending. The job market remains weak, and workers still are fearful of layoffs.

Federal Reserve Chairman Ben Bernanke has said the troubled U.S. household is one of the challenges to the economy’s recovery.

“The possibility that the recent stabilization in household spending will prove transient is an important downside risk to the outlook,” Bernanke says.

Date : 8/7/2009