By: Dr. Mike Campbell
As the world’s largest economy, the US domestic market is one that warrants frequent attention. Some 70% of US economic activity supports domestic demand which explains why a near 10% unemployment rate within the USA is a cause of great concern. Figures just released for the US 4th quarter economic growth show that the economy expanded by 0.78% over the previous quarter (an annualised rate of 3.2%). Taken as a whole, growth in the US economy for 2010 came in at 2.9% (on the basis of this preliminary data).
Taking a Closer Look
Consumer spending in Q4 was up by 3.5% on the same quarter in 2009. It was the strongest increase seen in consumer activity since before the financial crisis struck in 2007 (but bear in mind this is a relative, rather than an absolute increase from a low base). The rise may herald a good start to 2011 since manufacturers will need to replace goods sold in Q4 which came from existing inventories.
The US Labor Department indicated that wages and benefits rose by 2% in 2010 – this is the second slowest increase since records began 28 years ago.
New home construction was up 3.4% which was unexpected, but again, this looks more impressive than it is as it comes off a very low base.
The Federal Reserve has made it clear that it will press ahead with further purchase under the “QE2” program. The aim of this is to support the economy by increasing liquidity in markets and, hopefully, stimulate the creation of new jobs. It seems clear that the US economy is recovering and equally clear that the pace of the recovery is very slow in comparison to previous economic cycles.