US Economy: Good or Bad?24 November, 2010, 1:47. Posted by Zarathustra
Tags: deflation, Economy, Inflation, US
To argue whether the US economy is heading to a right or wrong direction will take forever, and there might be as many reasons to believe that there will be deflation as reasons to believe that there will be (hyper-)inflation. That is perfectly normal, because economists can never agree on anything.
Today, we have got some economic data. First off, the good bits:
Gross domestic product growth was revised up to an annualized rate of 2.5 percent from 2.0 percent as exports, and consumer and government spending were stronger than initially thought, the Commerce Department said in its second estimate. From Reuters
Another good bits:
Payrolls increased in 41 U.S. states in October, led by Texas and New York, indicating the labour market is stabilizing across the world’s largest economy. From Bloomberg
Then, the bad one:
Sales of previously owned homes fell more than expected in October, possibly due to delayed foreclosures and overly strict lending standards, the National Association of Realtors said on Tuesday.
Sales fell 2.2 percent to a seasonally adjusted annual unit rate of 4.43 million units from September’s 4.53 million unit pace, the group said. Economists polled by Reuters had expected existing home sales to fall to a 4.49 million unit pace in October. U.S. stocks added to losses after the data. From Reuters
Although you might think that I am rather an outsider to the US economy, I have rightly pointed our that the burst of real estate bubble would be very difficult to recover, and I do not think this one would be an exception. Although the upward revision of GDP sounds good, GDP is a backward-looking figure, which is of very little value for investors when this number does arrive.
It now sounds like a cliché to me to say that the US economy is growing but too slowly. I would not be entirely surprised by that sluggish growth and sustained high unemployment. Perhaps Ben Bernanke is right that more stimuli are needed, though I would be rather surprised if quantitative easing can work, as I wrote here.
So US Economy: Good or Bad? Inflation or Deflation? I am still inclined to Deflation hypothesis. For one thing, I am not convinced that an economy with unemployment hovering at 10% and with all sorts of mortgage mess (oh yes, people have now forgotten about the foreclosuregate) can have a nice growth in consumption, which is a large chunk of the US economy.