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Spot the supposed improvement: 0, -1.9, -3.3, -3.9. That is the progression of year-on-year percentage growth rates for the US economy over the past four quarters. Yes, but the decline is slowing, reply optimists. The sequential fall in output was only 1 per cent, according to Friday’s second-quarter data, compared with -6.4 per cent before.
But of course things feel better. The economy is on massive doses of stimulus spending and cheap money. Government consumption surged 6 per cent quarter on quarter, which took some of the sting out of the overall contraction. Low interest rates cooled the meltdown in business and residential investment. Washington has also helped in other ways. Real incomes rose slightly, thanks to increased benefit payments and lower tax receipts.
But dulling the pain does not mean the patient is any healthier on the inside. The UK, which is spending three-quarters less than the US on stimulus measures as a proportion of 2008 output, recently reported growth falling a whopping 6 per cent year on year. In the US, the scary truth is that, in spite of rising incomes and government handouts, the consumer is fading fast. Friday’s 1.2 per cent collapse in personal expenditures was twice the expected decline.
With unemployment marching higher and total gross household debt relative to disposable incomes still 30-odd per cent above even the inflated average level of 90 per cent during the 1990s, it is hardly surprising the consumer is now beginning to cut back hard. So forget the big boost from inventories everyone is pencilling in for the second half. Nor, during a synchronous global recession, are exports likely to jump back to life. The US economy is not getting better – it is simply leaning ever more heavily on the state.
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