United States: Why the US Economy is Screwed11 February, 2011, 2:37. Posted by Zarathustra
Tags: Economy, United States
Is the US Economy screwed? In some ways, yes. Here are some of the reasons why the US economy is still screwed (which is by no means exhaustive), which should make you feel worried. However, if you think these are too depressing, you can well check out here for the reasons why the US economy is on the right track.
1. Housing Market is still weak
Needless to say, housing remains to be one of the weakest links, which is not really recovering. S&P/Case-Shiller indices are still going downward, and quantitative easing isn’t helping as mortgage rates are rising.
Source: Standard & Poors
2. Job Market is still weak
Whether the US job market is doing fine depends on how you read the data. The worrying aspect of the job market is that Labour force participation rate is down, lowest since the 1980s. That signals that people are dropping out of the labour force, so they are stopped being counted as unemployed.
Source: Bureau of Labour Statistics
3. Public Finance sucks
As far as public finance is concerned, the trajectory of debt level is now remarkably similar to what the Japan was facing after the crash of their real estate bubble. Sadly, Japanese government spent money in hope to stimulate their economy, but it failed.
Source: IMF (US from 2007, Japan from 1990)
4. Either Deflation or Hyper-inflation
As far as core inflation is concerned, the trajectory of the US inflation, again, looks increasing like the inflation trend of Japan after their economy crashed.
Source: St. Louis Fed (US from 2007), Statistics Bureau (Japan from 1990)
On the other hand, as food and energy prices have gone up (for what ever reasons you like). Although CPI inflation is still low, which probably means that prices are not really going up much as far as consumers are concerned, manufacturers are definitely feeling the increase in input prices. Sooner or later, either profit margins will be squeezed, or manufacturers have to pass cost to consumers. The result: high inflation, at least as far as the headline inflation numbers are concerned.
Source: Institute for Supply Management, St. Louis Fed
If all these sound impossible to believe, you are an optimist, such that you believe the US economy is really on the right track. If you think that the US economy is doomed, however, you might want some alternative data on why the US economy is on a right track to neutralise your depressed mood.
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