US Economy: Recovery not just around the corner - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

US Economy: Recovery not just around the corner

May 2, 2001

The GDP growth figures for the US economy released recently indicated a growth of 2% for the first quarter of the fiscal 2002. Many feel that this could be the first sign of a recovery or at least an indication that economy may just avoid a recession. The GDP growth figure is up from 1% in the fourth quarter of fiscal 2001. The growth in the economy was on the back of a strong consumer spending, which accounts for two-thirds of the U.S. economy. While the consumer confidence index had shown a downward trend for the first two months of the quarter for the month of March it had shot up to a level of 116.9. But the figures released for the month of April indicate a drop again. The index now stands at 109.2. According the Commerce department consumer spending and personal incomes rose in the month of March.

The University of Michigan's April final consumer sentiment index, which measures consumers' attitudes about the economy, fell to 88.4 in from 91.5 in March. The preliminary reading two weeks ago, before the Fed made its fourth rate cut, came in at 87.8.

The main culprits for the weakening of the consumer confidence index are a deteriorating business scenario and a less-favorable job market. With companies cutting thousands of jobs in recent months, the job market has weakened substantially and consumer confidence has been taking a hit. This is due to the fact that the employment sector has been shrinking faster than the manufacturing sector.

The number of new jobless claims has risen to a five-year high figure. According to the U.S. Labor Department stood at 4,08,000 in the week ended April 21 up from a figure of 3,90,000 in the previous week.

If the trend of weakness in the job markets continue the US economy may not be able to sustain growths as seen in the first quarter.

Meanwhile the manufacturing sector continued to shrink but for April the rate of shrinking was slightly lower than that seen for March. The National Association of Purchasing Management's (NAPM’s) key index of manufacturing activity rose to 43.2 in April from a reading of 43.1 in the previous month, the NAPM said. In terms of the rate of decline, the worst might probably be over. The declaration of the economy might be slowing down. The other data that gave support to the belief included inventory reductions and lower prices for materials. The rate of new orders also shrank at a slower rate than in March.

The NAPM index is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 industrial companies. A reading below 50 indicates a shrinking manufacturing sector; a reading below 42.7 percent points to a contraction in the overall economy.

The employment should pick up as the economic slowdown decelerates, this would in turn increase consumer spending. However, volatile energy costs could hamper a recovery in the second half, especially if a rise in gasoline prices dampens consumer spending and energy shortages raise prices manufacturers pay.

As the uncertainly looms large the Indian software industry’s valuations seem to sway correspondingly. Meanwhile, Indian software companies one after the other seem to be feeling the heat of the US economic slowdown. Nasscom has already lowered its projections for the growth of software exports. The growth earlier projected at 52% was lowered to 40-45% in mid April. But the question now is will the Nasscom numbers hold?

Equitymaster requests your view! Post a comment on "US Economy: Recovery not just around the corner". Click here!


More Views on News

My Latest Stock Recommendation (Fast Profits Daily)

Oct 9, 2020

How I picked an exciting stock using trends from both the commodity and equity markets.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

Apr 29, 2020

Ajit Dayal on how the mutual fund industry robs you of your wealth.

This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

Oct 16, 2019

If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

Gold could Hit 40,000 Sooner Than Expected (Profit Hunter)

Aug 16, 2019

Domestic gold prices are firing on both engines now. Gold prices could touch 40,000 faster than you could imagine.

More Views on News

Most Popular

Not Infosys or Wipro. India's Next Wealth Creators Could Be Drone Stocks (Profit Hunter)

Nov 25, 2020

India's drones directorate signals the next big defence tech multibaggers.

Stocks that Could Shine More than Gold After Diwali (Profit Hunter)

Nov 17, 2020

If the markets become volatile over the next few months, do this.

How the New Margins Will Impact You (Fast Profits Daily)

Nov 25, 2020

The new rules on margins will come into effect from 1st December. Are you ready?

How to Build the Best Trading System (Fast Profits Daily)

Nov 20, 2020

In this video, I'll show you how to make the best trading system.

An Eraser and Some Pencils (The Honest Truth)

Nov 17, 2020

Ajit Dayal on the road ahead for the world after covid.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms