Something very unusual is happening since past few days. Upbeat about world economic growth is gaining strength in spite of bad US data.
Most of the recent good new about economic recovery came from parts of the world other than US but the stock markets around the world rose without caring about the fact that US economic recovery is loosing its sheen. Dollar has been weakening against major currencies of the world. There are few things for US to dig in.
Firstly, the economic data for second quarter showed only 2.4% growth in Us economy. Growth in Q4 was 5% and that in Q1 was 3.7%.The figures show that US economy is loosing its momentum and they loosing it very fast. Spending has been less and consumer confidence on decline. At such a pace of growth we can’t expect labour market to improve in near future. US is going through worst crisis since 1930s. It is imperative to revive labour market if we want to see a growth in economic activities in US.
Secondly, recent buzz about growth in manufacturing may just wiped out by inventory cycle. Us have always seen swings in inventory cycle. Companies are acquiring large inventories on the expectation of good economic recovery but once the inventories fill the warehouses completely the manufacturing will see the downward trend and excess supply the trap US into another round of deflation. Situation seems to be critical as Fed doesn’t have more tool to fight deflationary pressures as interest rates are very low already.
Thirdly, economic engine of the world, China, looks to be cooling its economy to fight inflation. If economic activity in China looses its pace then it may slowdown the growth of entire world which would ultimately be disastrous for growth of very unstable US economy.
