Business » Finance
Author`s name Dmitry Sudakov

Another Stage of US Recession Just Round the Corner

Many US media outlets said today that the words “recession’s second wave” were no longer just a speculation. Russian economists believe, though, that there is no need to panic. There are serious economic problems in the United States indeed, but they are not likely to develop into something serious.

The alarming reduction of the consumer confidence index in the USA, which dropped to 52.9 in June from 62.7 in May, made many lead experts believe that economic recession was coming back. They said that the US economy was on the way to hit another bottom, if it had not reached it already, K2kapital wrote with reference to Dow Jones Newswires.

The sales of new homes in the United States in May dropped by 32.7% - to 300,000. It’s a record low reduction: the index marked the lowest point since 1963. The Commerce Department said that there were 446,000 new homes sold, but not 504,000, as previously reported.

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Another report said that the sales on the secondary housing market in the United States dropped by 2.2% - to $5.66 million on an annualized basis.

The Federal Reserve System left the interest rate range on federal funds unchanged last week on the level of 0.0-0.25%. In addition, the FRS marked down its estimation of the state of economic affairs in the USA, which most likely means that the interest rates would be kept on record lows until next year. The statement said that the key interest rate would remain on the level close to zero during a long period of time.

On Tuesday, the US stock market showed a dramatic reduction – stock exchange indexes lost 3%. Dow Jones slipped below the psychologically relevant level of 10,000. Investors massively turned to safe assets – dollars and state bonds. The yield on Two-Year Treasury Notes dropped to the level of 0.59% - the lowest in the history of observations.

It just so happens that the Americans are being pessimistic about the perspectives of the national economy and labor market.

Steven Ricchiuto, chief economist for Mizuho Securities USA, is certain that the US economy is about to decline again. He said that Europe and Japan were already suffering from deflation and added that the USA was standing on the brink of deflation too.

Those, who predict another recession in the US economy, say that it is not going to be as strong as the first one during the first quarter of 2009, when the economy dropped by 6.4%. Ricchiuto forecasts a reduction from 0.5 to 1.0 percent during a couple of quarters.

“The most recent data on the US economy show that the economic growth has been slowing down. The dollar has been gaining strength, which causes damage to US exporters. The oil spill in the Gulf of Mexico seriously affects the economy too. The unemployment is growing as well: people have no jobs, they suffer from the lack of financial means – there is no demand, no supplies and no economic growth. However, the US economy looks stronger than the European one. The only danger is stagnation,” Mikhail Molodov of Maxwell Capital told Bigness.

The complicated economic situation in Europe will also affect the US economy. Europe cuts its imports from the USA as it takes bailout measures. Moreover, Europe will have to send its export to the USA to extricate from the crisis.

China ’s economy has been raising economists’ serious concerns recently too. If the bubble on the Chinese real estate market bursts, the nation’s government will most likely take measures to export its goods to the USA.

If governments do nothing but sit on their hands, the global economy will suffer from a third tremendous depression during the recent 150 years.

Ekaterina Yevstigneyeva
Bigness

Read the original in Russian

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