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Trade-24 Daily Review 08/11/12
Whoever comes to power in the US is going to have a lot of challenges with regards to the economy. This is a summary of what he is going to get. First, the economy itself is on the mend. You could see this in the latest US data that proved to be solid or at least much better than a year ago. The economy grew by almost 3%, manufacturing and services PMI also showed growth and the employment figures on Friday were good. Although the unemployment rate stayed elevated, the Payrolls increased by 171,000 people, which is one of the best figures this year. The figures are definitely showing that the labor market is getting stronger in the US.
A better labor market will lead to higher consumer spending in 2013, further fueling growth in the economy. As a matter of fact recent retail sales beat forecast, showing that the stronger labor market is helping the consumer to be confident and spend more.
Other sectors of the economy also showed robust performance. For example, house starts surged by 15% to the highest is more than 4 years. Builders broke ground for 872,000 new houses, according to data published in October. This is important because 2007-9 recession hit the housing sector the most. Economists estimate that for every new house built, at least three new jobs are created!
Still, housing starts rate is still nearly 60% below its January 2006 peak, so it has a lot of room to rebound. Another good sign is that price declines slowed, implying that housing is bottoming out.
On the other hand, the fiscal cliff in the US is threatening the economy. Unless a fractious Congress can move swiftly to reach a deal after the U.S. elections on Tuesday, about $600 billion in government spending cuts and higher taxes are set to kick in from January 1 and could push the U.S. economy back into recession. Even the G20 officials urged US to resolve this issue. G20 ministers met in the weekend in Mexico. They said this issue posed an even higher threat to global economy than the European debt crisis.
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