On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters. Consumer spending continued to increase in the first two months of this year and has now risen at an annual rate of about 2-1/2 percent in real terms since the middle of 2009. In particular, after slowing in January and February, sales of new light motor vehicles bounced back in March as manufacturers offered a new round of incentives. Going forward, consumer spending should be aided by a gradual pickup in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability.
In the business sector, capital spending on equipment and software appears to have increased at a solid pace again in the first quarter. U.S. manufacturing output, which is benefiting from stronger export demand as well as the inventory adjustment I noted earlier, rose at an annual rate of 8 percent during the eight months ending in February. Also, as I will discuss further in a moment, financial conditions continue to strengthen, thus reducing an important headwind for the economy.
To be sure, significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments. Sales of new and existing homes dropped back in January and February, and the pace of new single-family housing starts has changed little since the middle of last year. Outlays for nonresidential construction continue to contract amid rising vacancy rates, falling property prices, and difficulties in obtaining financing. Pressures on state and local budgets, though tempered by ongoing federal support, have led to continuing declines in employment and construction spending by state and local governments.
The latest retails sales news is certainly good. From Reuters:
WASHINGTON, April 14 (Reuters) – Sales at U.S. retailers rose more strongly than expected in March, pointing to a broadening of the manufacturing-led economic recovery as inflation pressures remained muted.
The retail sales report on Wednesday painted a picture of consumer defiance in the face of high unemployment and tight access to credit and was the latest in a series to suggest a strengthening in domestic demand.
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