US Economy - Is The Economy Further Slowing Down?
If the latest update on the US economy is to be believed, it seems to be the case that some slowdown in the economy seems to be taking place. From consumer confidence, to job growth and housing prices, there seems to be some pullback in, suggesting that some economic slack is building up in the US economy.
The Conference Board's consumer confidence index took an unexpected dip to 52.5 in December from a five month high of 54.3 in November. The index fell due to the number of consumers who felt that business conditions are good, fell from 8.5% to 7.5%. However, on the brighter side, consumers who felt that business conditions had become worse declined to 41.2% from 42.9%. This suggests there are more people who believe that business conditions did not worsen as compared to people who thought that business conditions had worsened. However, what is a cause for concern is the fact that the number of consumers who feel that jobs are hard to come by, increased to 46.8% from 46.3% and those who felt that jobs were available in abundance fell to 3.9% from 4.3%. It appears that the worry on the job front seems to be driving the dipped sentiment for the consumer confidence index in the current scenario.
The sluggish job market then seems to hold the key to leading the economic growth as more employment will increase consumer demand, which constitutes nearly 70% of US GDP. A close analysis of the job market suggests that post 2000, the recession has forced US companies to look at cost cutting strategies, which has resulted in the shipping of jobs overseas or what is called outsourcing. According to an economic policy think tank, the US has created 1.4 million jobs outside the US in 2010. The number of jobs created in the US was less than 1 million. Had the jobs created outside the US been created in the US, it could have reduced the unemployment rate from 9.8% to 8.9% and put the US on a firmer economic recovery path. The trend on the jobs front suggests that high paying jobs, which usually stayed within the US, have now started to move to places like India and Brazil. While, this model does offer a comparative advantage to companies, it is at the cost of the US economy. Thus, while economic recovery has taken place, lower job creation within the US has led to consumer demand not picking up in line with the economic recovery. This implies that economic recovery has remained constrained due to jobs being shipped outside the US.
As a champion of a free economy, the US is finding it hard to clamp down the shipping of jobs overseas. Thus, while companies and stock holders are benefitting from the shipping of jobs overseas, with costs coming down and profitability improving, the US consumer, especially the middle class has to bear the brunt.
Close on the heels of job worries, the housing sector also displayed signs of weakness. As per the S&P Case Shiller index, housing prices slid 1.3% in October from the level in the previous month. The real linkage of all these eventualities seems to be a constrained job market, leading to a weakened consumer confidence and lack of robust demand. A strong growth of jobs in the US seems to be the solution to quicken the pace of economic recovery in the US.
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