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U.S. Economy: Pause or Double Dip?


July 15 — Is the U.S. economy in the midst of a pause, the kind that is typical in an economic recovery, or is it on track for a "double dip" downhill slide?

A spate of recent economic news and reports makes that the question of the day for businesses, consumers, economists and legislators trying to tilt the economy in the right direction.

Yesterday the U.S. Federal Reserve lowered its forecast for economic growth by a couple of tenths of a percent, to between 3% and 3.5% this year. In April the forecast was for growth of 3.2 to 3.7%.

In the same vein, the Fed forecast the unemployment rate would drift down to 9.2% this year from the current 9.5%. In April it forecast the rate would fall to 9.1%.

The Good
  • Nationwide, industrial production rose more than expected in June. Production was up 0.1%, following a 1.3% gain in May. A survey of panelists had forecast a 0.1% drop in June, reported Bloomberg News.
  • U.S. wholesale prices in June fell by 0.5%, according to figures from the U.S Labor Department, which suggests the economy is recovering without inflation. The drop was greater than forecast, Bloomberg reported. A survey of economists had forecast a 0.1% decline.
  • Household balance sheets improved in the first quarter and household net worth advanced for the fourth consecutive quarter said the Eye on the Economy newsletter from the National Association of Home Builders (NAHB). NAHB expects the household wealth trend to continue gradually upward for the remainder of 2010 and 2011.
  • Consumer debt is at its lowest level since 2000, the newsletter added.
  • U.S. productivity continues to improve—it's been moving up for eight quarters. To keep improving productivity, businesses will have to begin permanent hiring soon, the newsletter notes.
  • Similarly, single-family home inventory is at a 40-year low. Any jump in demand will be a powerful spur to new construction.
The Bad
  • Some 1.65 million U.S. properties received some level of foreclosure filings in the first half of the year, reported RealtyTrac, a real estate market data firm. These filings include default notices, auction sale notices and bank repossessions.
The number was 5% below the previous six months but 8% above the number in the first half of 2009. Banks seized some 269,962 homes in the second quarter, an increase of 5% from the previous quarter and 38% above the number in the second quarter 2009.

The pace of properties entering the foreclosure process slowed during the quarter, explained James J. Saccacio, RealtyTrac CEO, but banks also moved more aggressively to clear up the backlog of foreclosures already in progress. The Conclusion
The sum of the economic news is plenty of uncertainty and lots of opinions.

Consumers and businesses lack confidence that the economy is really on a solid footing. Banks are holding down lending, and many economists say that's hurting small businesses and thus the economic expansion. The stock market has been trending down, with periods of optimism mixed in. Wall Street firms are reported to be hiring in anticipation of a solid bull market.

According to Former Federal Reserve Chairman Alan Greenspan, the economy has run into an invisible wall, but, "this is essentially a typical pause that occurs in an economic recovery."