Think Tank: US recovery vulnerable to risks

26 July 2013 08:47  [Source: ICB]

The US economy continues its slow and moderate recovery, but top policy makers, economists and economic data suggest that the climb to normal growth will be long, sluggish and vulnerable to internal and outside risks.

In July, Federal Reserve Board chairman Ben Bernanke noted that the improving US housing sector "has contributed significantly to recent gains in economic activity". Increases in housing sales, home prices and residential construction are helping to boost employment, household finances and consumer spending.

Ben Bernanke Rex Features

Rex Features  

Bernanke sounds a caution on the US economy

He cautioned, however, that the housing recovery could be vulnerable if recently increasing home mortgage loan rates rise too fast. "It will be important to monitor developments in this sector carefully," he told the panel. The housing sector may be one of those internal risks that could impede the recovery.

As Bernanke noted, improvements in home construction and sales have been major movers for the broader economy, so if housing should falter anew, so too might the overall recovery.

Indeed, in July, the US housing sector got an unwelcome reminder of how capricious the market can be. US new home construction tumbled by 9.9% in June from May, more than offsetting the 7% gain seen in May.

While the bulk of the housing construction downturn was laid to the nearly 27% plummet in apartment building work, housing starts in the key single-family home building sector also fell in June by 0.8%. That was a marginal decline, to be sure, but not the direction associated with recovery.

Bernanke said that the US job market is improving, although gradually, and the nation has seen average monthly jobs growth of about 200,000 so far this year.But the US economy needs to generate at least 150,000 new jobs each month just to accommodate population growth and new workers entering the market.

The nation added 175,000 new jobs in May, but despite that improvement the unemployment rate inched back up to 7.6% because long-unemployed workers returned to the job hunt. Some 195,000 jobs were added in June, but the jobless rate held steady at 7.6%.

US gross domestic product (GDP) grew at only 1.8% on an annual basis in the first quarter this year. That is better than the nearly flat GDP growth of 0.4% seen in the fourth quarter of 2012, but the US first quarter performance was still below the pace set in two earlier quarters of 2012 - 2% in the first quarter 2013 and 3.1% in the third last year.

By: Joe Kamalick
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