At this point, there's little question that the U.S. economy has taken a step back. We now have enough indicators from May to see that it was an ugly month that doesn't fit in with a recovery narrative. Job growth was too anemic to keep up with population growth; retail sales began to fall; and home prices continued to drop as sales remain very low -- to name just some of the bad news we've seen. Is this just a temporary rough patch or can we expect to see layoffs resume and GDP decline as recession returns?
Bill McBride at Calculated Risk addresses this question today. He does a great job of laying out what has caused the current setback and discusses whether these factors are temporary or lasting. But it's also important to think about what obstacles the U.S. economy faces going forward. Here are several ongoing drags he sees:
• Less Federal stimulus spending in 2011. The American Recovery and Reinvestment Act of 2009 (ARRA) is winding down, and will be a drag on GDP growth.
• The ongoing cuts in state and local spending.
• The festering financial crisis in Europe. Although the direct impact on U.S. trade would be minimal, there could be a significant financial impact on the U.S. if Greece (and other countries) default.
• The slowdown in China impacting U.S. exports.
• Another downturn in house prices.
Ultimately, he says that we've got to wait a few more months to see how a few factors evolve, particularly commodity prices. But for now, he appears to believe that it's too soon to say that a double dip inevitable.
Read the full story at Calculated Risk.
This article available online at: