By: Dr. Mike Campbell
Preliminary indications, issued by the US Department of Commerce, suggest that the US economy is slowing down. The annualised GDP figure for Q1 was 3.7%, but the figures for Q2 suggest that this has eased to 2.4%. The Q2 data is subject to adjustment when the final figures are released, but with unemployment remaining at 9.5%, the figures are unlikely to be substantially better and could, of course, be worse. On the positive side, the US economy has shown growth in each of the past four quarters.
The decline has been blamed on rising imports and a weakening demand for high ticket items, such as cars, produced domestically. If you bear in mind the fact that the Dollar fell by between 2.6 and 8.7% against other major currencies over the course of Q2 (making imports more expensive), it can be understood how this would affect the GDP figures. Much of the nation’s GDP is due to domestic demand for its own goods and services and consumer demand was more subdued in Q2 than it had been in the first quarter. Of course, a weaker Dollar is good news for American exports, but the GDP figures reflect the balance between imports and exports.
The Outlook For The World's Largest Economy Remains Uncertain
In the depths of the global financial crisis, the US government pumped hundreds of billions of Dollars into the economy to attempt to re-establish confidence and maintain liquidity in the markets. At some point, the stimulus package will need to be withdrawn. However, as recently as Friday, the IMF suggested that the US may need to increase its stimulus measures to support the recovery. Just about everybody seems to agree that the outlook for the world’s largest economy (in the short term at least) remains uncertain. This probably explains the on-going decline in the value of the Dollar in the international currency markets.