Tuesday, March 04, 2008

US Recession

US Recession Fears Grow

Sources: Financial Times, British Telegraph

Newly released economic data increased fears of a US recession. Some individuals, such as Warren Buffett, already claim that the US is already in a recession with the worst yet to come. Last months manufacturing report reported some contraction in the US sector, but the sector did not contract as much as originally predicted. Economists based their bleaker projection on earlier regional surveys that showed a weak manufacturing sector.

The less than expected contraction was fueled by manufacturer cutbacks due to recession fears. This is the third straight month of contraction, but nevertheless, was still better news than expected. Stocks, bonds, and the US dollar rebounded slightly. There was some additional good news. The weak dollar has led to growing exports. US exports have grown for 63 consecutive months.

Nevertheless, not all news was good. While the manufacturing sector did not contract as predicted, construction spending fell drastically—at a pace not seen in 14 years. “Activity is plunging faster than ever in the residential sector and the long-feared collapse in commercial real estate activity now appears to be materializing,” said Paul Ashworth at Capital Economics.

Despite the economic slowdown, few economists predict the bleak scenario that engulfed the US during the stagflation era of the 1970s, although some—including Buffett—believe that inflation may be on the way. Buffett warned that the Federal Reserve Chair, Ben Bernanke may have a “very tough balancing act” to right the economic ship.

Question: What actions can Mr. Bernanke take, along with the US government, to prevent the continual decline of the US economy? Can the economic stimulus package along with the housing assistance ignite the US economy?

1 comment:

Remitter said...

In one of your posts you had discussed how the remittances have dropped last year. I feel remittances and recessions are inter linked and can not be viewed separately. A large number of Filipinos live in the US and are directly dependent on it for securing their livelihood. The US recession has given birth to a lot of anxiety and uncertainty among these OFWs. The situation is to be handled carefully to ensure that the interests of the OFWs are safeguarded.