After having a decline in consumption in by .3 percent in
December, January has posed an increase in consumption of .6 percent. Paul
Ashworth stated “The markets may have decided that the U.S. is headed for
recession, but obviously no one told U.S. consumers,” which is undoubtedly a
good thing since the largest component of our GDP is consumption. However, the
article hints at quite a bit of future problems. Since global markets are
starting to face turmoil, the U.S. dollar is quite strong at the moment leading
to less exportation. Furthermore, the article suggest that investment is low
stating “weak reports on inventories, factory orders and construction spending
suggest the economy grew at about a 0.2 percent rate in the last three months
of 2015.” In addition, the article also points out that the consumer
sentiment index has fallen to 90.7. This indicates that consumers are actually
becoming aware of the current economic predicament and possibly not going to
spend at the same level as seen in January. Finally, since price of imports
have been dropping the past 17 of the last 19 months, the Fed’s goal of 2
percent inflation will most likely be missed again.
http://www.nytimes.com/2016/02/13/business/economy/consumer-spending-gains-offset-recession-fears.html?mabReward=A7&moduleDetail=recommendations-2&action=click&contentCollection=DealBook®ion=Footer&module=WhatsNext&version=WhatsNext&contentID=WhatsNext&src=recg&pgtype=article
Obviously, any increase in consumer spending is cause for celebration as it can usually be indicative of a healthy and growing economy. However, this does seem to be one of the exceptions as many are worried about rising causes for concern with the US economy. Financial instability abroad has left many people wondering if it will infiltrate our markets, allowing us to slip back into 2008 issues. I still think it is too early to worry about that but we do have to be cautious moving forward.
ReplyDeleteI agree Trey, I think it is too early to be worrying about a recession. But, I think that it's not too early to prepare for a recession. I think that it would be wise to start saving a little more than currently because you never know when the economy will take a plunge.
DeleteWith consumption being the largest portion of the U.S. economy's GDP, growth in this area usually only points in one direction towards quality economic expansion. Not just based solely off the information in this article, the FED's goal of 2% inflation really does seem like a stretch. Right now a lot of things are unsure. Will the U.S. eventually experience the struggle of many foreign markets right now?
ReplyDeleteSince the US is an open market, turmoil or a recession abroad will affect the economy at home; however the affects may not be as fast. Additionally a decrease in demand for American goods abroad will hurt US manufacturing, and US production which will cause job loss, output loss and a decrease in GDP. Potentially, companies could be further forced to move manufacturing out of the US to use their American dollars in a weaker economy and generate more profit.
ReplyDeleteThe most alarming element of this, to me, is the increasing value of the dollar leading to a decrease in exports. We are already facing significant trade deficits and this will obviously lead to higher deficits. The decrease in savings will further our debt and it seems that it can contribute to an ultimate recession down the line.
ReplyDelete