According to Ethan Harris, the head of developed markets economic research at BofA Merrill Lynch Global Research in New York, many sectors of the economy that traditionally drive it into recession are already so depressed - not devastated - that it is so difficult to see them getting any worse. Since the beginnings of the Great Recession, manufacturing firms have started to cut their production and just retain a low level of inventories. At this point, inventories are near record lows in proportion to sales. In addition, in other sectors such as housing, residential construction is less than half the level of the housing boom and there is a decrease of more than 40 percent of vehicle sales below 5 years ago. Regarding all of that, Ethan Harris said in his report that the possibility the economy lapsing into another contraction during the next year is around 25 percent. Although the economy may not get worsen, it does not mean that we are getting better since it is just less likely for a contraction during next year.
Add to that, the Federal Reserve also agreed that a renewed contraction is unlikely despite the risks have also risen. "I expect the economy to continues to expand in the half of this year, albeit at a relatively modest pace," said Fed Chairman Ben S.Bernanke in an Aug 27th speech.
On September 2nd (Bloomberd) - Paul Donovan, deputy head of global economics at UBS AG talks about the outlook for the US economy and Federal Reserve monetary policy.
I think that an expansionary monetary policy should be placed in order to lower unemployment and to lower interest rates to get people to spend more money- therefore maybe increasing production in the housing industry and car markets.
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