Economic Growth Being Sustained By Stimulus Checks
The credit crunch is still here, commodity prices continue to rise and equity markets have lost nearly 20% from their highs last fall, yet economic growth is expected to remain positive through the summer on the strength of stimulus checks that started arriving to millions of Americans back in May.
While much of the increase in consumer spending in recent months has been attributed to inflation, there was a noticeable increase in non-food and energy spending in May which has benefited the retail sector especially.
A couple of months back, many financial experts were stating that the worst was behind us, but the fact of the matter is the current economic doldrums could very well last another year at the least. Despite the best efforts of the Fed to pump billions of dollars of liquidity into financial markets as well as the government sponsored moratorium on Adjustable Rate Mortgage increases, the housing market remains in a deep slump.
As delinquencies and foreclosures keep rising, it is becoming more and more likely that writedowns for financial firms will continue to grow for the next few quarters. Tighter lending standards and rising mortgage rates have helped curtail demand and coupled with the glut of unsold homes it is apparent that a recovery will not take place anytime soon.
Right now investors are reacting strongly to any type of negative news. In the first two weeks of June Treasury yields climbed on inflation concerns as investors retreated from fixed income markets only to fall sharply as a slew of bad earnings reports sent equity markets tumbling and started the flight to quality once again.
There are a lot of things wrong with the economy right now and once the gravy train runs out though, all bets are off. With consumer confidence levels at their lowest point in years it is quite possible that sometime in the fourth quarter or early next year, we could finally see the long awaited recession many American have been expecting for some time.
