Wednesday’s declaration by the Federal Reserve that the US economy appeared to be “levelling out” came amid growing confidence in US markets that the country is heading for recovery.
House prices are falling and jobs are still being lost but US equities closed solidly higher after a Fed statement that sparked neither panic nor jubilation.
A monthly survey by Bloomberg of 53 economists showed a 1.2 percentage point increase in the median forecast for third-quarter growth, the biggest uplift for more than six years and one that shows the contours of the recovery are still shrouded in uncertainty.
The trade deficit widened in June, official data released on Wednesday showed, but by less than expected – from $26bn (€18bn, £16bn) in May to $27bn, with exports faring better than forecast.
“Strengthening economic growth in some of our major trading partners may account for the recent rise in exports,” said Jay Bryson, an economist at Wells Fargo Securities. “All else equal, June’s trade data would lead to a 0.2 percentage point upward revision [to second-quarter gross domestic product] growth.”
The better mood among markets and economists has allowed the Obama administration to spend less time fire-fighting economic challenges and more time on selling its planned reform of the US healthcare system.
However, the less bleak picture is seen as a political challenge too – making it more difficult for Tim Geithner, the Treasury secretary, to push through Congress his reform of financial regulation.
Jim Kessler, vice-president for policy at Third Way, a liberal think-tank, disagrees. “Like winning streaks in sports, good economic news is never bad for what the president wants to do – whether it’s financial regulation reform or whether it’s healthcare reform. When the economy is bad, people want to hoard what they have.”
The National Association of Realtors said more than 80 per cent of urban areas showed lower house prices compared with the same time last year.
In spite of the slight dip in the unemployment rate – from 9.5 per cent in June to 9.4 per cent last month – companies continued to cut jobs.
“I think [unemployment] will continue to move up and it probably gets to 10 per cent by the end of the year,” said Robert Mellman, senior economist at JPMorgan Chase.
However, he said that by the end of the year the labour market should start to turn round.
As Barack Obama is always careful to acknowledge, glimmers of recovery are no comfort to those losing their jobs. Lost in the din of a rancorous healthcare debate, one health insurer cut 1,800 positions in California this week. Kaiser Permanente said this was partly a knock-on effect of other companies cutting employees, who then lose their healthcare coverage and reduce demand for the insurer’s services.
Small businesses, meanwhile, are having to adapt to survive. Charles Roberts’s retail business in Washington is in the midst of a long-term downturn but his latest venture is aiming to profit from a cyclical recovery. Video 2000, his pornographic video shop, began to lose business to the internet and the recession and Mr Roberts decided to open a bicycle repair store next door. “In this economy, you have to be open to diversifying,” he said. “We used to joke around and say we’re going to open a coffee shop next.”
Though activity remains slow, Mr Roberts said the bike shop had profited from customers opting to repair their wheels rather than buy a replacement bike.
He remains sanguine on the economy: “Sales have been steady for the summer, but in the wintertime there will definitely be a downturn.”
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