Saturday, January 30, 2010
4th quarter's fast economic pace likely to wane
Analysts claim that even though the economy expanded at a rate of 5.7 percent last quarter, such growth is unsustainable. Instead they predict growth around 2.5 to 3 percent this quarter. This will not be enough to drive down the unemployment rate, and in fact the economy would have to grow by 5 percent for the entire year for this to happen. This recession appears to not be as dependent on the consumers, but on the spending by businesses, foreigners, and government stimulus.
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Two-thirds of the quarter's growth came from increased manufacturing. But companies will eventually let those inventories fall again unless consumers spend more. Consumers are responsible for about 70 percent of the GDP. History suggests this isn't the best route for a strong recoverery. In the early 1980s, inventory building accounted for 74 percent of growth in the first quarter of 1981. But then the economy fell into a second recession in 1981 and 1982. The unemployment rate hit 10.8 percent. This was the hightest it has been since world war II at the time
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