Monday, September 28, 2009

How Sustainable Is the U.S, Recovery?

How sustainable is the U.S economic recovery? Before I make a more definite statement on the subject, I'll have to look at the data released later this week. But given what we know now, it appears to be very weak and vulnerable.

First of all, the durable goods order report indicated weakening investment demand, considering both the negatuve monthly change and the downward revision od previous numbers.

Secondly, the Chicago Fed National Activity Index showed continued contraction in August.

And both the existing and new home sales reports were disappointing.

The one positive report was the retail sales number which showed strong growth. Because of that, it is highely likely that notwithstanding the above numbers, GDP growth was positive in Q3 2009-at least compared to the previous quarter and not adjusting for terms of trade effects.

However, that gain was largely built on people taking advantage of the "cash for clunkers"-scheme. But since that is a temporary scheme, there will likely be a hangover in the form of lower sales later.

In short, current data suggests that the risk of a "double dip" recession is very high.


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