U.S. growth has slowed sharply in Q2 2010 for not advancing only 2.4% annual rate after a first quarter to 3.7%. Note that the first quarter was revised upward by 1% from 2.7% to 3.7%. However, go this good news, many surprises have made their appearances:
- the recession has been harder than expected and GDP contracted by 2.6% in 2009 against 2.4% previously.
- growth in the fourth quarter was revised down to 5% against 5.6% previously.
According to the Department of Commerce, the revisions came from downward adjustments to estimates of consumer spending and residential construction activity.
However, this does not seem surprising. In fact, remember, in March I fully husked U.S. GDP figures in the following note http://le-monde-economique.blogspot.com/2010/03/actualites-economiques-le-rebond-du pib.html- and I stressed that the Commerce Department would announce necessarily estimates downward for some positions. I then concluded that the rebound was "statistics" as the share of consumption in the composition of GDP remained surprisingly low and that unemployment was increasing which meant that the consumer could not take over to ensure sustainable growth. Recall that consumption accounts for 66% of the composition of U.S. GDP in normal times.
How to interpret this?
The improvement that has seen the 4th quarter of 2009 and Q1 2010 (to a lesser extent) is partly due to the phenomenon of restocking. During 2008 and 2009, consumption has slowed and companies have engaged in reducing their inventories to leave the leading sell off part of deflation (declining prices generally). From mid 2009, and under the leadership of U.S. stimulus filling order books, companies then started to replenish their stocks and thus to produce.
However, the demand is for companies to remain well below pre-crisis demand, so to maintain profitability strong, they make cost reductions (layoffs) and have been heavily relies on foreign outsourcing. Moreover, China is the big winner of stimulus over one year since its exports have increased by 50%.
What does this imply?
First the massive recourse to foreign outsourcing and cost cutting to maintain profitability at a certain level causes a leak before the government can not solve. Indeed, unemployment remains very high, since according to members of the Fed by counting the unemployed discouraged, it would be at least 17% (the U.S. unemployment statistics usually account only the unemployed who no longer work for less than 6 months). This very high rate of unemployment has two consequences:
- a drop in demand which is aimed at companies because of the decline in household consumption. So companies continue to downsize or when not to recruit to maintain an acceptable financial return to reassure the markets. If we focus on the unemployment figures for 2009 and 2010, we find that the private sector is clearly the weakest link and that the public sector using the recovery plan that allows job creation or to compensate for destruction. However for the moment, there was a lull in the private sector job losses. It was not until the return to see if this is not the phenomenon of "seasonal jobs."
- credit freezes completely. Indeed, we see that the consumer credit continues to decline month by month wait for a level of contraction ever seen. Banks do not rule out a whole scenario of "W" in particular because of the worsening debt crisis. Therefore they prefer not paying for not increasing their bad debts that are, to date, legion.
What is disturbing about these figures is that unlike France which has fully performed its recovery plan in 2009, the U.S. decided to deploy nearly 60% of the recovery plan in 2010. Thus, since early 2010, there was both an intensification of the recovery plan and a slowdown in U.S. growth which shows that government efforts, the price of an exorbitant debt, allowing just compensate private demand fever and consumption. It should also
understand that a growth of 2.4% annual rate is insufficient to effectively counter unemployment in the United States simply because a large proportion of jobs created will be occupied by the entry of young people into the labor market. This means creating more jobs than the natural increase of population and this is far from won especially since the end of 2010 stimulus packages will end ...
understand that a growth of 2.4% annual rate is insufficient to effectively counter unemployment in the United States simply because a large proportion of jobs created will be occupied by the entry of young people into the labor market. This means creating more jobs than the natural increase of population and this is far from won especially since the end of 2010 stimulus packages will end ...
Alexandre Letourneau
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