Money Matters, Simplified.
Economic recovery on the anvil
by Jamie Anderson - August 1, 2009 - comments
The report by the department of commerce on the indicators of the health of the economy is out. Although there are encouraging signs, economists are still apprehensive about the fall in the capital spending and increase in unemployment
New York, August 1: The ongoing economic recession, the worst since the Great Depression, turned out to be shoddier than previously thought. The good news though is that the end to this seemingly unrelenting recession could just be round the corner.
If the economic indicators are anything to go by, not only will the recession end shortly, the economy would also rebound more strongly than previously projected.
GDP numbers look good
Data revealed by the U.S. government revealed the Gross Domestic Product (GDP), which is defined as the total value of goods and services produced, shrank at an annual pace of 1 percent in the second quarter of the year.
This contraction beats the economist’s prediction of 1.5 percent shrinkage in the GDP for the said quarter. During the last six month, the GDP has contracted by as much as 6 percent.
The data, revealed by the Commerce Department on Friday suggests that corporate houses cut back on stocks by a record amount in the second quarter. This means that the production would be ramped up to fill up these depleted warehouses. The spike in production, in turn, will give the much needed boost to the economy.
Mark Zandi, chief economist at Moody's Economy.com opined, "It sets the stage for a stronger recovery. The subsequent recovery will be modest, but better than I had thought before today's numbers."
The trouble spots
The GDP may have provided the ray of hope but the burning issue of rising unemployment still bogs the economy.
Since the beginning of the recession in late 2007, the U.S. economy has shed close to 6.5 million jobs. Even today, the threat of unemployment still looms large on the heads of thousands of working employees.
The unemployment rate of 9.5 percent in June is likely to head north with employers having laid off thousands of employees in July as well.
Another key area of concern is the commercial real estate market, including office structures and retail outlets. The government pointed that the slump in this sector was much bigger than previously thought.
The consumer spending that accounts for close to 70 percent of the economy also slid at an annual rate of 1.2 percent in the second quarter.