US growth slows to 2.4% in Q2

Consumers turn cautious but business spending shows some encouraging signs

(Washington) THE United States' economic recovery lost momentum in the spring as growth slowed to a 2.4 per cent pace, its most sluggish showing in nearly a year and too weak to drive down unemployment.

Consumers spent less, companies slowed their restocking of shelves and the nation's trade deficit dragged more on the economy in the April-to-June quarter.

In a separate report, the Commerce Department said the recession was deeper than previously estimated.

The Commerce Department's report released yesterday also showed that the economy grew at a 3.7 per cent pace in the first three months of this year. That was much better than the 2.7 per cent pace estimated just a month ago.

Still, the recovery has been losing power for two straight quarters. That raises concerns about whether it will fizzle out. Or worse, tip back into a 'double-dip' recession.

Consumer spending, usually the lifeblood of economic activity, slowed in the second quarter. Such spending rose at an anaemic 1.6 per cent pace. That was down from a 1.9 per cent pace in the first quarter and was the weakest showing since the end of last year.

Instead, Americans saved more. They saved 6.2 per cent of their disposable income in the second quarter, the highest share in a year.

The 2.4 per cent growth rate logged in the April-to-June quarter was slightly less than the 2.5 per cent pace economists were forecasting.

It was also the weakest since a 1.6 per cent pace in the third quarter of last year, when a record streak of four straight losing quarters came to an end.

'The economy is growing but not enough to make most Americans happy. At this weak pace, it will take more time than many hoped for people to really feel the benefits of this upturn,' said Joel Naroff, president of Naroff Economic Advisors.

In the revisions issued yesterday, the government estimated that the economy shrank 2.6 per cent last year - the steepest drop since 1946.

However, there were some encouraging signs in terms of business spending. Spending by businesses on equipment and software increased at a blistering 21.9 per cent pace in the second quarter, the most in nearly 13 years.

Builders boosted spending on commercial projects, such as office buildings and plants, at a 5.2 per cent pace. It marked the first increase after seven straight quarters of cuts.

Overall economic growth was bolstered in the second quarter by strong spending by the federal government. It boosted spending at a 9.2 per cent pace, the most in a year. And, state and local governments, coping with budget shortfalls, increased their spending for the first time in a year. -- AP

Source: Business Times, 31 Jul 2010

US outlook 'unusually uncertain'

But sustained growth expected despite recent softening: Bernanke

WASHINGTON: The Federal Reserve stands ready to ease monetary policy further if the budding United States economic recovery withers, Fed chairman Ben Bernanke said on Wednesday, describing the outlook as 'unusually uncertain'.

Policymakers, however, still expect growth to be sustained despite a recent softening in the economy, Mr Bernanke said in congressional testimony, playing down the risk of renewed recession and the possibility of deflation.

'We remain prepared to take further policy actions as needed to foster a return to full utilisation of our nation's productive potential in a context of price stability,' he told the Senate Banking Committee.

Nonetheless, Mr Bernanke said the US central bank was continuing 'prudent planning for the ultimate withdrawal of monetary policy accommodation'.

The Fed has kept interest rates near zero since December 2008 and has bought more than US$1.5 trillion (S$2.1 trillion) in mortgage and Treasury bonds to fight the recession and financial crisis.

The economy resumed growth about a year ago, but stubbornly high unemployment, a fresh drop in housing activity and a slowdown in manufacturing have raised fears of a double-dip recession.

Although Mr Bernanke said the chances of a fresh downturn were not high, US stocks retreated as he testified, with major indices dropping more than 1 per cent. Some investors were surprised by the Fed chief's candid admission of lingering uncertainty, while others were taken aback by the tentative nature of the Fed's plans for further easing.

Asian markets recoiled yesterday after his downbeat outlook, but Shanghai stood firm on improved prospects for earnings and China's property market.

'Reaction is basically turning into a spasm of despair. The market was looking for some form of concrete action from Mr Bernanke; a commitment to do something,' said Mr Brian Dolan, chief currency strategist at Forex.com, on Wednesday.

'All we got was that they're aware of the risks and are prepared to take as yet unspecified actions.'

Pressed on what the Fed could do to ease monetary policy further, Mr Bernanke said it could reinvest mortgage bonds that are rolling off its balance sheet or engage in further debt purchases. It could also lower the rate it pays banks to park their excess reserves at the Fed, he said.

'If the recovery seems to be faltering, then we at least need to review our options. We have not fully done that review,' he said.

While Mr Bernanke left the door open to further easing as he delivered the central bank's semi-annual monetary policy report to Congress, he made clear that officials were still banking on a sustained, if sluggish, economic rebound.

'Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth,' he said.

For now, he said the Fed expects that economic conditions will warrant an exceptionally low benchmark federal funds rate for an extended period - repeating a vow the central bank has kept in place for more than a year.

Mr Bernanke said a weak job market was acting as a drag on consumer spending and that it would take a long time before the economy can restore the nearly 8.5 million jobs lost in the last two years.

Against that backdrop, he indicated that inflation was not a concern and was unlikely to become one any time soon.

In a separate development, the US House of Representatives voted overwhelmingly on Wednesday to temporarily lift tariffs on hundreds of imported raw materials used by US manufacturers struggling in the sour economy.

US President Barack Obama's Democratic allies described the measure, which lawmakers approved 378-43, as a key step in their efforts to boost job creation, with unemployment near 10 per cent just months before key November elections.

The legislation, which must still be approved by Senate, aims to help US manufacturers by reducing production costs.

REUTERS, AGENCE FRANCE-PRESSE

Source: Straits Times, 23 Jul 2010

US growth revised down to 2.7% for Q1

WASHINGTON: United States economic growth was slower than previously reported in the first quarter as estimates of business and consumer spending were cut.

In its final estimate on the first quarter yesterday, the Commerce Department said gross domestic product (GDP) expanded at a 2.7 per cent annual rate instead of the 3 per cent pace it reported last month.

Although the growth pace was below market expectations of a 3 per cent rate, it still marked three straight quarters of expansion as the economy digs out of its most brutal downturn since the 1930s.

However, recent data has suggested that the recovery lost some momentum in the second quarter, with persistently high unemployment restraining consumer spending, and home building and purchases faltering.

'You are getting growth in fits and starts... We are not generating real income growth that we like. It's a recovery that has a real weight on its back,' said Mr Paul Ballew, chief economist at Nationwide in Columbus, Ohio.

The Federal Reserve this week struck a cautious note on the economy and said the recovery was 'proceeding'. The economy is, however, not expected to fall back into recession.

GDP, which measures total goods and services output within US borders, grew at a 5.6 per cent pace in the fourth quarter.

Growth in the January to March period was held back by business spending, which rose at a 2.2 per cent rate only, instead of 3.1 per cent as reported last month.

Another drag on growth came from exports whose growth was eclipsed by a rise in imports, resulting in a trade deficit that subtracted from GDP.

State and local governments also weighed, with their spending falling at the sharpest pace since the second quarter of 1981.

Growth in consumer spending was also revised down to a 3 per cent rate. Although the rise was below the 3.5 per cent pace reported last month, it was still more than double the 1.6 per cent pace in the fourth quarter and the largest advance in three years.

Consumer spending, which normally accounts for more than two-thirds of US economic activity, added 2.13 percentage points to GDP last quarter, also the largest contribution since the first quarter of 2007.

However, real final sales to domestic purchasers, considered a better measure of domestic demand, rose at a 1.6 per cent rate instead of the 2 per cent pace reported last month.

REUTERS

Source: Straits Times, 26 Jun 2010

Pace of US recovery faltering: Fed

It vows to maintain low interest rates for extended period

WASHINGTON: The United States Federal Reserve acknowledged a faltering pace of economic recovery as it renewed its vow to hold benchmark interest rates markedly low for an extended period.

In a statement at the end of a two-day meeting on Wednesday, the Fed scaled back its assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile financial markets in the light of Europe's debt woes.

But it stuck to its expectation that the economy will continue to gradually emerge from the worst recession in decades.

'Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad,' the central bank said in a statement.

As expected, the Fed held overnight rates in the zero to 0.25 per cent range set in December 2008.

Dr Cary Leahey, an economist at Decision Economics, said: 'In early May, a substantial minority of analysts were looking for the Fed to alter the language on extended period in June to prepare for an August rate hike. All that has gone out the window.'

Kansas City Federal Reserve Bank president Thomas Hoenig dissented for the fourth consecutive meeting, arguing that the Fed's promise to hold rates ultra-low for a long time risks perpetuating a boom and bust cycle.

The Fed said the economic recovery was 'proceeding', a downgrade from its assessment in April, when it said the economy had continued to strengthen.

Policymakers nodded to a slowdown that has become evident in housing. In April, they had noted that housing starts had 'edged up', but on Wednesday, they said only that starts 'remain at a depressed level'.

The central bank also tempered its view of consumer spending, saying it was 'increasing, but remains constrained by high unemployment, modest income growth and lower housing wealth'. In April, it said spending had picked up.

The Fed also noted a recent softening of inflation. It cited a decline in energy and other commodity prices, and said underlying inflation had trended lower.

Recent disappointing job and housing market reports, financial turmoil in Europe and a four-decade low in a key inflation metric have raised doubts about the outlook, prompting some analysts to push back Fed rate hike forecasts.

While most economists think a rate increase will still be the next step, some have suggested the Fed should consider additional ways to spur growth and lending.

But the Fed offered no hints it plans any such move.

A report on Wednesday showing a record low in sales of new single-family homes last month dealt a clear setback to hopes for a speedy pick-up in growth.

Fed chairman Ben Bernanke told a congressional panel earlier this month he expects the US economy to expand at a 3 per cent annualised rate this year and gain steam next year.

Still, he cautioned that 'a significant amount of time' would be needed to restore the jobs lost.

REUTERS

Source: Straits Times, 25 Jun 2010

US economy to grow 3.5% this year

Fed chief sees modest impact from euro zone crisis, faster growth led by consumer spending

WASHINGTON: The US economy is on track to grow 3.5 per cent this year as it sees only a 'modest' impact from the euro zone debt crisis, Federal Reserve chairman Ben Bernanke said yesterday.

'The economy... appears to be on track to continue to expand through this year and next,' Mr Bernanke said in testimony to Congress.

He said the pace of growth would likely quicken next year, driven by rising consumer spending.

'The incoming data suggest that gains in private final demand will sustain the recovery in economic activity,' he told a House of Representatives panel.

'Consumer spending is likely to increase at a moderate pace going forward, supported by a gradual pick-up in employment and income, greater consumer confidence, and some improvement in credit conditions.'

US consumers, long the drivers of the world's largest economy, are spending around 3.5 per cent more today than they were this time last year, Mr Bernanke said.

He warned that the still-moribund housing market continues to drag on the recovery, as home prices are pushed down by vast numbers of vacant houses and home builders struggle to get credit.

'Underlying housing activity appears to have firmed only a little since mid-2009,' he said.

But continuing his recent upbeat tone, Mr Bernanke said the spiralling European debt crisis should have only a modest impact on the US.

'If markets continue to stabilise, then the effects of the crisis on economic growth in the United States seem likely to be modest.'

He said the negative impact of Europe's crisis was offset by a decline in the US government's cost of borrowing, as investors rush to the perceived safe haven of Treasury bonds.

Mr Bernanke added that Europe's crimped economy could push down oil prices, a trend that could help US consumers and businesses. But he warned that the US must heed the lessons of fiscal woes seen across the Atlantic.

The US national debt stands at a historic high of US$13 trillion (S$18.4 trillion) and government deficits are soaring.

Mr Bernanke said that while short-term spending had been needed to stimulate the economy, the deficit must be brought down over time.

Meanwhile, a top International Monetary Fund official has said Europe's debt crisis could disrupt global trade, hurting demand for Asian exports and sending 'hot money' into the region if policymakers fail to act swiftly and appropriately.

Although Asia has limited financial links to euro zone economies, its stronger growth prospects could attract more capital flows to the region and lead to asset bubbles, said IMF deputy managing director Naoyuki Shinohara yesterday.

'The key will be for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold,' Mr Shinohara said in a lecture to financial professionals in Singapore.

'With Asia's economic muscle growing, the policy choices made in this region will have an important impact on the global economy,' he said.

Mr Shinohara, however, also said the economic situation in Hungary, the latest European country to run into financial difficulties, was not as serious as portrayed in some media reports.

And the World Bank yesterday said global growth this year will accelerate faster than previously estimated, even as some countries risk a double-dip recession.

'Market nervousness concerning the fiscal positions of several European high-income countries poses a new challenge for the world economy,' it said in its annual Global Economic Prospects report.

'If markets lose confidence in the credibility of efforts to put policy on a sustainable path, global growth could be significantly impaired and a double-dip recession could not be excluded.'

The bank said the world economy is forecast to expand 3.3 per cent this year. Its prediction in January was for growth of 2.7 per cent.

AGENCE FRANCE-PRESSE, REUTERS, BLOOMBERG

Source: Straits Times, 10 Jun 2010

European crisis not a major threat to US economy

(WASHINGTON) Anxiety about Europe's debt crisis last month caused US stocks to suffer their worst month in more than a year.

Yet many experts say fears that Europe will deal a sharp setback to the US economy are overblown.

They note that trade between the US and Europe is comparatively small. US banks do lend to their European counterparts and hold billions in investments in those banks and other European firms.

But US banks have enough capital to withstand losses from a European crisis, analysts say.

In addition, the European Union is preparing a US$1 trillion bailout for weak member states. And its central bank has begun buying government debt to protect European banks - and their US counterparts - from the risk of default by EU countries.

The anxieties that have spooked US stock markets could linger a while. The Dow Jones industrial average has fallen more than 12 per cent since late April. But the foundations of the US economy remain secure, experts say.

'The physical linkages with Europe just aren't big enough to undercut the US economy,' said Ethan Harris, head of North American economics at Bank of America Merrill Lynch.

If European countries default on their debt, big US banks with operations in Europe could suffer. US banks don't hold much national debt of Greece, Spain and other countries.

But they do have investments tied up in big European banks - those most at risk in case a European country defaults.

The European Central Bank has warned that European banks might have to reduce the value of assets on their books by US$239 billion over this year and the next. Such losses could prevent the banks from repaying their debts to US financial firms. And if US banks fear such defaults, cross-border lending could dry up.

For all of Europe, US banks have US$1.1 trillion at stake. That's roughly 38 per cent of the US$3.1 trillion in loans and derivatives US banks have with all foreign banks. Derivatives are investments whose value depends on the price of underlying assets, such as stocks or mortgages.

Substantial losses from investments tied to Europe would cause US banks to reduce lending. A deep credit crisis could reduce US growth by 1.5 per cent and possibly cause another recession, Goldman Sachs said in a recent note.

The threat from Greece, Spain, Italy and Portugal - the weakest eurozone countries - itself is small, says Mr Harris of Bank of America Merrill Lynch. US banks' exposure to those countries is US$165.9 billion - just 5.4 per cent of all loans and derivatives US banks have with foreign banks. And US lending to Europe accounts for only about 10 per cent of total US bank assets of nearly US$12 trillion.

Even in case of another credit crisis, few predict anything like the damage caused when banks lost billions on sub-prime loans after homeowners defaulted on their mortgages. Since then, banks have added billions more in capital. They are better able to withstand Europe's problems, Fed governor Daniel Tarullo has said.

Thirty per cent of US exports of goods and services - or US$461 billion - last year went to Europe, according to the Bureau of Economic Analysis. Economic troubles in Europe could sap demand for US exports, slow hiring and drag on the US economy.

Exports could be hurt in two ways: A stronger dollar relative to the euro makes US-made goods and services costlier to foreign buyers. So foreigners buy less. Secondly, budget cuts by European nations further reduce the ability of European customers to afford US products.

'Weaker export growth wouldn't derail the US recovery,' Mr Harris says. Exports account for only about 12 per cent of US economic activity. And US exports to Europe equal only 3 per cent of US gross domestic product - less than the size of the US auto industry.

By contrast, US sales of goods and services to Asia, whose economy is far stronger than Europe's, accounted for 27 per cent of all US exports last year. Exports to Asia would help blunt some of the reduced US export business to Europe. China's currency is pegged to the US dollar, so Chinese customers could still afford US products even if the US dollar kept rising versus the euro.

As the US dollar rises in value compared with the euro, oil prices are falling, too. Lower interest rates and lower oil prices could lead consumers to borrow and spend more and invigorate the economic recovery.

'The U. may actually be an unwitting beneficiary of the crisis in Europe,' James Bullard, president of the Federal Reserve Bank of St Louis, said in a speech last month. -- AP

Source: Business Times, 10 Jun 2010

US economy grew less than estimated

WASHINGTON: The economic rebound in the United States in the past quarter turned out to be slower than first thought, one of the reasons unemployment is likely to stay stubbornly high this year.

The economy grew at a 3 per cent annual rate from January to March, the Commerce Department said yesterday. That was slightly weaker than an initial estimate of 3.2 per cent growth a month ago.

The new reading, based on more complete information, also fell short of economists' forecast for stronger growth of 3.4 per cent.

The reasons for the downgrade: consumers spent less than first estimated. The same goes for business spending on equipment and software, while the nation's trade deficit was a bigger drag on economic activity.

Normally, growth in the 3 per cent range would be considered healthy. But the country is coming out of the longest and deepest recession since the Great Depression, meaning economic growth needs to be two or three times the current pace to make a big dent in the 9.9 per cent unemployment rate.

Labour Department figures yesterday showed more Americans than forecast filed applications for unemployment benefits last week, indicating redundancies persist even as the economy rebounds and employment rises. Initial jobless claims fell by 14,000 to 460,000 in the week ended May 22.

ASSOCIATED PRESS, BLOOMBERG

Source: Straits Times, 28 May 2010

Q1 grows at slower pace

THE US economy grew at a slower pace than previously estimated in the first quarter as businesses investment slackened, while hard-hit state and local governments curbed spending at the steepest rate since 1981, a government report showed yesterday.

Gross domestic product expanded at a 3 per cent annual rate, the Commerce Department said, instead of the 3.2 per cent pace it reported last month.

Analysts polled by Reuters had forecast GDP, which measures total goods and services output within US borders, growing at a 3.4 per cent rate in the January-March period. The economy expanded at a 5.6 per cent pace in the fourth quarter and has now grown for three straight quarters.

Economists are monitoring the US recovery closely to see how well the economy can endure the debt troubles that threaten to slow Europe's growth. The above-trend first-quarter US growth suggests a solid base of support. Output in the first three months of the year was revised down as business spending rose at only a 3.1 per cent rate instead of the 4.1 per cent initially reported last month.

Spending grew at a 5.3 per cent pace in the fourth quarter. Business spending on software and equipment increased at a 12.7 per cent rather than the 13.4 per cent rate reported last month. State and local government spending contracted at a 3.9 per cent rate, the largest decline since the second quarter of 1981.

However, consumer spending, which is key to the economy's recovery, held up well. Consumer spending increased at a 3.5 per cent rate, rather than the 3.6 per cent rate reported last month. Although it was revised down slightly, it was still more than double the 1.6 per cent pace in the fourth quarter and the largest advance since the first quarter of 2007.

Recovery from the longest and deepest recession since the Great Depression had so far been largely driven by the manufacturing sector as businesses replenished their warehouses to meet strengthening demand. Consumers, however, are now participating as the labour market begins to firm.

The GDP report also showed after tax corporate profits rose 2.1 per cent in the first quarter after increasing 6.5 per cent in the final three months of 2009. -- Reuters

Source: Business Times, 28 May 2010

US economy up 3.2% in Q1

WASHINGTON: The United States economy expanded at a 3.2 per cent annual rate in the first quarter as consumers stepped up spending, the strongest sign yet that a sustainable recovery is taking hold.

While growth slowed from the fourth quarter's rapid 5.6 per cent pace and was a tad weaker than economists had expected, the details of the report from the Commerce Department yesterday were fairly upbeat.

Consumer spending, which normally accounts for about 70 per cent of US economic activity, added nearly 2.6 percentage points to gross domestic product (GDP) last quarter, the biggest contribution since the fourth quarter of 2006.

'Once you take a quick look under the hood, you see some very positive signs there,' said Mr Ward McCarthy, chief financial economist at Jefferies & Company in New York. 'This is just the latest piece of evidence to suggest that the recovery is sustainable.'

Analysts had expected GDP, which measures total goods and services output within US borders, to grow at a 3.4 per cent rate in the first quarter.

The economy has now grown for three straight quarters, although it still has a lot of lost ground to make up after its deepest and longest recession since the 1930s.

The report showed consumer spending rose at a 3.6 per cent rate in the first quarter, more than double the 1.6 per cent pace in the fourth quarter last year and the biggest gain since the first quarter of 2007.

'Retail sales are up, people are spending money,' said Mr Michael Woolfolk, a senior currency strategist at BNY Mellon in New York. 'We are seeing the beginning of the process of a broad-based recovery.'

The US has emerged from the recession more swiftly than Europe or Japan.

Analysts said the welcome but moderate pace of US growth meant the Federal Reserve could bide its time before raising benchmark interest rates from their current levels near zero, particularly with unemployment hovering near 10 per cent.

The US central bank on Wednesday noted that activity had strengthened in recent weeks and that the labour market was starting to improve. Still, it said it expected a modest recovery and renewed its vow to keep rates low for an extended period.

Business inventories increased US$31.1 billion (S$42.7 billion) in the first quarter, adding 1.57 percentage points to GDP, as businesses restocked to meet firming demand. It was the first increase in inventories since the first quarter of 2008.

Businesses also continued to spend on software and equipment, though a bit less vigorously than in the prior quarter, boding well for the economic recovery.

New home construction was a drag on growth in the first quarter after two quarters of gains. Residential investment contracted at a 10.9 per cent rate.

Source: Straits Times, 1 May 2010

Fed keeps rates at record lows; upbeat on economy

WASHINGTON: The Federal Reserve has sounded a more confident note that the US economy is strengthening but pledged to hold rates at record lows to make sure it gains traction.

Wrapping up a two-day meeting on Wednesday, the Fed in a 9-1 decision retained its pledge to hold rates at historic lows for an 'extended period'. Doing so will help energise the recovery.

The Fed offered a more upbeat view even as it noted that risks remain. It said the job market is 'beginning to improve', an upgrade from its last meeting in mid-March, when it said the unemployment situation was merely 'stabilising'.

It also noted that consumer spending has 'picked up', an improvement from its last observation that spending was expanding at a 'moderate pace'.

Even with the gains, the Fed noted reasons to be cautious. High unemployment, sluggish income gains and tight credit are still dampening consumer spending, a major contributor to economic activity.

Commercial real estate remains fragile. And though housing activity has edged up, it is still at depressed levels. Bank lending continues to shrink.

The Fed's statement included nothing that would lead most economists to move up their forecasts for when the central bank will start raising rates.

The soonest the Fed will do so is the fourth quarter, 34 of 44 leading economists polled told The Associated Press.

'The Fed did upgrade its assessment of the economy, but clearly there is too much headwind for the recovery' for the Fed to signal any plans to boost rates, said economist Sung Won Sohn at California State University.

Kansas City Fed chief Thomas Hoenig was, for the third straight meeting, the sole member to dissent from the overall decision to keep the 'extended period' pledge. He worries that this will limit the Fed's stated 'flexibility' to start modestly bumping up rates.

He fears keeping rates too low for too long could lead to excessive risk-taking by investors, feeding new speculative bubbles in stocks, bonds and commodities.

The Fed's brighter assessment helped give a modest lift to stocks. The Dow Jones industrials gained about 53 points, a rise of 0.48 per cent, on Wednesday.

The Fed has held its target range for its bank lending rate at between zero and 0.25 per cent, where it has remained since December 2008. In response, commercial banks' prime lending rate, used to peg rates on certain credit cards and consumer loans, has stayed at about 3.25 per cent - its lowest point in decades.

Nonetheless, signals are growing that the US economy has turned a corner. Employers added a net total of 162,000 jobs in March, the most in three years. Consumer confidence is rising and manufacturers are boosting production.

Source: Straits Times, 30 Apr 2010

Fed opts for gentle touch on interest rates

It says economy is getting better but decides to keep rates low for extended period


IT was a message awash with hope and a surprisingly gentle punchline.


The employment market is improving, household spending is on the rise, business investment is picking up, the Federal Reserve's interest rate policymaking committee said on Wednesday. Despite this, the Federal Open Market Committee's stance on keeping short-term interest rates near zero for an 'extended period' remains unchanged.

The decision to peg the key federal funds rate in the range of 0 per cent to 0.25 per cent - where it stays - was initially taken more than a year ago, at a time when the financial crisis was running at fever pitch and the US economy appeared in imminent danger of plunging into its first depression since the 1930s.

The FOMC's decision to leave unchanged its promise to keep interest rates low 'for an extended period', brought to a somewhat surprising end weeks of speculation on Wall Street that the April meeting would mark the unofficial beginning of a period in which the Fed will begin to prepare investors for an eventual rate hike off its current historic low levels with an alteration or modification of some sort of the much-invoked phrase.

Steady improvement in economic data and minutes from the March FOMC meeting, which was marked by a steady chorus of dissent and debate among the committee's voting members regarding the need to keep interest rates so low, had investors braced for a new signal on how the central bank will begin pulling liquidity from the system.

'The betting was that we would get an upgrade on the committee's outlook on the economy, and along with that a downgrade on its belief that interest rates need to be kept at nearly zero without a change in the Fed's policy stance even on the horizon,' said Max Bublitz, the chief market strategist at San Francisco, California-based SCM Advisors, which manages over US$3.5 billion in institutional and private assets. 'Instead what we got from the Fed was a kind of a yawner of a statement,' he observed.

'While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the committee anticipates a gradual return to higher levels of resource utilisation in a context of price stability,' the FOMC said, using new, more optimistic language on the economy and pointing to improvements in various economic sectors at the beginning of its statement.

The key portion of its commentary, on its intentions, however, could have been lifted from any of the FOMC's policy meeting statements of the past several months:

The committee 'continues to anticipate that economic conditions, including low rates of resource utilisation, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.'

The Federal Reserve Board's mostly unchanged statement had a welcome calming effect on Wednesday on a stock market still feeling jolted by the unravelling of attempts to fix Greece's debt woes and the ripple effect those attempts are having on the value of the euro and the sovereign debt of first Portugal and now Spain, which on Wednesday saw its debt rating downgraded by S&P.

Stocks ticked higher after the Fed left interest rates unchanged and kept the 'extended period' language in its statement, turning a morning of losses into an afternoon of gains.

The Dow Jones Industrials finished with a gain of 53 points, or 0.5 per cent, to 11,045.27.

The S&P 500 gained eight points, or 0.7 per cent, to 1,191.36, while the Nasdaq Composite edged up by only a fraction of a point, or 0.01 per cent, at 2,471.73.

Debate over the merits of and the reasons for the Federal Reserve's willingness to maintain the 'extended period' language, despite strengthening in economic activity began almost immediately.

Some market strategists argued the Fed might feel handcuffed by the turmoil coming out of Europe's sovereign debt crisis, while others said the Fed might actually be hoping to see some inflation enter the economy as a way to raise values of the mountain of distressed assets still weighing on banks, which remain reluctant to lend.

'If they don't get their act together soon and start raising rates, it's not going to be too bullish when we have all this debt to refinance and the dollar keeps on weakening,' said Dave Rovelli, managing director of equity trading at Canaccord Addams.

Mr Bublitz agreed that looking longer-term, the Fed's willingness to keep rates so low could weigh on the economy and the financial markets in various ways. 'But bottom line is that for now, the Fed is keeping intact the basis for the 13-month-long rally, and that's obviously bullish for risk assets,' he said.

Source: Business Times, 30 Apr 2010

Consumer spending up, savings rate hits 18-month low

(WASHINGTON) US consumer spending rose in March for a sixth straight month as households pushed savings to a 11/2-year low, further evidence consumers were starting to take a bigger role in the manufacturing-led recovery.


The Commerce Department said yesterday that spending rose 0.6 per cent after rising by an upwardly revised 0.5 per cent in February, previously reported as a 0.3 per cent gain.

Paul Dales, an economist at Capital Economics, said the big decline in the savings rate was 'disconcerting' because it called into question the durability of the current rebound in consumer spending.

'Households are finally starting to contribute in earnest to the economic recovery, but in the main, this is being financed through a rundown in savings rather than a surge in incomes,' he wrote in a research note.

'We are concerned that . . . the consumer recovery will be short-lived rather than long-lasting,' he added.

The data was reflected in the first-quarter gross domestic product report that was published on Friday.

Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of US economic activity, to increase 0.6 per cent in March.

'Consumer spending is recovering and in a broader context, the leadership in the recovery is transferring to the consumers from corporations even with a depressed job market,' said Guy Lebas, fixed income strategist at Janney Montgomery Scott in Philadelphia.

During the housing boom of the last decade, the annual savings rate had fallen as low as 1.7 per cent in 2007. Consumers felt more wealthy as their home values soared and therefore felt less of a need to save.

However, after housing sales and prices collapsed, helping to send the country into a deep recession, Americans began saving more. The savings rate rose to 4.3 per cent in 2009, the highest level in a decade.

The government reported on Friday that the broadest measure of economic activity, the gross domestic product, grew at an annual rate of 3.2 per cent in the January-March period.

That marked the third quarterly increase since last summer.

Most economists believe the recession, which began in December 2007, probably ended in either June or July last year.

The healthy first quarter GDP gain was driven by a big rebound in consumer spending, which powered ahead at an annual rate of 3.6 per cent, the best showing in three years.

But economists said spending gains of that size cannot be maintained without greater income growth. -- Reuters, AP

Source: Business Times, 4 May 2010

Rates to stay low for some time: Bernanke

Fed chief says US job market remains weak despite signs of growth

WASHINGTON: Federal Reserve chairman Ben Bernanke told Congress yesterday that a weak job market and low inflation would likely allow the US central bank to keep interest rates at very low levels for 'an extended period'.

In his first appearance before Congress following a testy confirmation vote in the Senate last month, Mr Bernanke offered a relatively sombre assessment of the United States economy despite recent signs of strong growth.

The country has lost 8.4 million jobs since the start of the economic downturn, the deepest since the Great Depression. The Fed chief said job losses were abating, but also acknowledged the recession's toll on American workers.

'Notwithstanding the positive signs, the job market remains quite weak,' Mr Bernanke said in prepared testimony to the US House of Representatives Financial Services Committee.

He told lawmakers that he stood prepared to continue supporting the economy with extraordinary stimulus for some time, but also argued the Fed possessed a broad array of tools to remove such accommodation when the time was right.

Deciding when to boost rates will be the next big challenge facing Mr Bernanke. Boosting rates too soon could derail the recovery. But waiting too long could trigger inflation and feed a speculative asset bubble. That, too, could threaten the economy, along with Americans' pocketbooks and nest eggs.

Mr Bernanke would say only that 'at some point', the Fed would need to move to tighten credit. He sketched out the Fed's strategy, first unveiled on Feb 10, on how this would be done.

He said the Fed is likely to boost the rate it pays banks on money they leave at the central bank, which would mark a shift away from the funds rate, the Fed's main tool since the 1980s. A bump up in the interest rate on bank reserves, though, would ripple though the economy in much the same way an increase in the funds rate does. Consumers and business borrowers would have to pay more for loans.

Meanwhile, government data yesterday hinted at potential trouble for the fragile housing market recovery, showing sales of newly built single-family homes unexpectedly fell to a record low last month.

The Commerce Department said sales dropped 11.2 per cent to a 309,000-unit annual rate, the lowest level since records started in January 1963, from an upwardly revised 348,000 last December.

The percentage decline last month was the largest in a year. Analysts polled by Reuters had expected new home sales to increase to a 360,000-unit annual pace from December's previously reported 342,000 units.

Compared to January last year, sales fell 6.1 per cent.

'It's awful. This is with the home buyer tax credit. I don't understand people who say the housing market is turning,' said Mr Joe Saluzzi, co-manager of trading at Themis Trading in New Jersey.

Source: Straits Times, 25 Feb 2010

US recession is over, survey shows

WASHINGTON: The worst US recession since the Great Depression has ended but weak household spending amid high unemployment will slow the pace of recovery, according to an influential survey of economists.

The poll of 44 professional forecasters released by the National Association for Business Economics (Nabe) on Monday found 80 per cent believed the economy was now growing, after four straight quarters of decline.

'The great recession is over,' Nabe president-elect Lynn Reaser said. 'The vast majority of business economists believe that the recession has ended, but that the economic recovery is likely to be more moderate than those typically experienced following steep declines.'

Recessions in the US are dated by the National Bureau of Economic Research. The private-sector group, which does not define a recession as two consecutive quarters of decline in real gross domestic product, often takes months to make determinations.

It takes into account factors such as a decline in economic activity lasting more than a few months, real income, employment, industrial production and wholesale-retail sales.

The recession that started in December 2007 is the longest and deepest since the 1930s. It was triggered by the US housing market's collapse and the ensuing global credit crisis.

While the economy is believed to have rebounded in the third quarter, analysts believe ordinary Americans will probably not see much difference as unemployment will stay high well into next year, restraining consumption.

'Consumers will be reluctant to join the party,' said Mr Paul Ashworth, a senior US economist at Capital Economics in Toronto.

The Nabe survey, conducted last month, predicted real GDP growth expanding at an annual pace of 2.9 per cent over the second half of this year. Output for the whole year is expected to contract 2.5 per cent, before rebounding 2.6 per cent next year.

Much of the anticipated recovery was seen as being driven by businesses rebuilding inventories.

Investment in the residential market would also add to growth, with the majority of the survey's respondents convinced that the housing market downturn was nearing an end.

The survey found that high house prices would not pose a threat to the sector's recovery.

It also predicted that unemployment will rise to 10 per cent in the first quarter of next year and edge down to 9.5 per cent by the end of the year. The labour market was not expected to regain most of the jobs destroyed in the recession until 2012 or later.

Unemployment hit a 26-year high of 9.8 per cent last month.

But labour market slack, combined with weak wage growth, meant inflation would not be an obstacle to recovery and the Federal Reserve will not be under pressure to raise interest rates, the survey found.

'With improving credit markets, the US economy can return to solid growth next year without worry about rising inflation,' Dr Reaser said.

The central bank was seen leaving its overnight benchmark lending rate near zero until late spring, followed by measured increases to 1 per cent by the end of the year, the survey showed.

Respondents expect the dollar to continue weakening into next year, but did not see this contributing to a narrowing of the trade deficit as the economic revival stimulates demand for imports.

The dollar has lost about 5.8 per cent against a basket of currencies this year, largely because of worries over the budget deficit and expectations that interest rates will remain low for a while.

REUTERS


Source: Straits Times, 14 Oct 2009

Obama not yet prepared to declare recession over

(WASHINGTON) President Barack Obama isn't ready to close the book on the US recession.

'All the signs are that the economy's going to start growing again,' he said, citing improving manufacturing and financial markets. At the same time, he said he would 'leave it up to' Federal Reserve chairman Ben Bernanke to declare whether the recession is over.

Mr Obama said jobs are a challenge and said the United States will probably face high employment for some time. 'Probably the jobs picture is not going to improve considerably, and it could even get a little bit worse, over the next couple of months,' Mr Obama said yesterday in an interview on CNN's State of the Union programme. 'We lost so many jobs that making up for those that have already been lost is going to require really high growth rates.'

'We're probably not going to start seeing enough job creation to' keep pace with 'a rising population until some time next year', Mr Obama said. 'You need 150,000 additional jobs each month just to keep pace with' population growth.

The unemployment rate reached 9.7 per cent in August, a quarter-century high.





The Fed chief said on Sept 15 that the worst US slump since the 1930s has probably ended, while warning that growth may not be strong enough to quickly reduce the unemployment rate. 'Even though from a technical perspective the recession is very likely over at this point, it's still going to feel like a very weak economy for some time,' he added. The remarks were his most explicit statement that the contraction that began in December 2007 is over.

Mr Bernanke convenes the next meeting of Fed policy makers on Sept 22-23 in Washington.

Mr Obama's comments on the economy came as he launched a TV broadcast blitz to build public support for his top domestic priority, a remake of the US healthcare system whose fate now rests in the hands of a pivotal but deeply divided Senate committee. He became the first US president to appear on five Sunday network talk and public affairs shows in the same morning, an extraordinary effort to defend his healthcare overhaul which has come under intense attack from opposition Republicans.

The interviews with ABC, CBS, NBC, CNN and the Hispanic network Univision were taped on Friday at the White House.

Mr Obama also is visiting David Letterman today, the first appearance ever by a sitting president on the comedian's Late Show. The media push leads up to tomorrow, when members of the Senate Finance Committee plan to start voting on their version of a healthcare reform bill.

Democrats on the committee are disappointed with the bill proposed by the chairman, Senator Max Baucus of Montana. Republicans see a chance to deliver a stunning blow to Mr Obama that could cripple his presidency.

The 23-member committee is a microcosm of the Senate, the narrow gate through which legislation to cover the nearly 50 million uninsured Americans and try to control medical costs has to pass. If the committee can't produce, then the ability of Mr Obama and the Democrats to pass a bill this year will be in serious question. -- AP, Bloomberg

Source: Business Times, 21 Sep 2009

GDP dips by 1% - less than expected

Optimism grows with second quarter data; fewer workers are claiming jobless benefits

WASHINGTON: The United States economy shrank less than expected in the second quarter and fewer workers filed new claims for unemployment benefits last week, supporting views the economy was starting to heal after a severe recession.

Gross domestic product (GDP) fell at a 1 per cent annual rate, according to a US Commerce Department report yesterday - unchanged from last month's estimate and better than market expectations for a 1.5 per cent contraction.

Many analysts believe the economy is growing in the current third quarter, but they caution that any rebound will not be accompanied initially by rising employment.

The report yesterday found that businesses slashed their inventories more than first reported and cut back more sharply on investment in new plants and equipment. But those reductions were offset by revisions that showed smaller dips in consumer spending, exports and housing construction.

The Commerce Department's preliminary report also showed corporate profits after taxes rose 2.9 per cent in the second quarter, likely a function of cost-cutting measures by companies, after increasing 1.3 per cent in the first three months of the year.

A separate report from the Labour Department yesterday showed that the number of US workers filing new claims for jobless benefits fell last week to 570,000 from an upwardly revised 580,000 the prior week. The tally of those continuing to claim benefits dropped to 6.13 million from 6.25 million, the lowest level since early April.

'We've been expecting to see signs of improvement in the economy consistent with the belief that we'll get growth in the third quarter for the first time in over a year,' said Mr David Resler, chief economist at Nomura Securities, in New York. 'Everything that we've seen in recent weeks reinforces that degree of optimism.'

The 1 per cent decline in GDP in the April-June quarter followed decreases of 6.4 per cent in the first quarter and 5.4 per cent in the final three months of last year, the sharpest back-to-back declines in a half-century. The four straight quarterly declines in GDP, which measures the country's total output of goods and services, mark the first time that has occurred on government records dating to 1947.

The recession that began in December 2007 is the longest since World War II. The world's largest economy has shrunk 3.9 per cent since last year's second quarter, making this the deepest recession since the Great Depression of the 1930s.

The US government found that consumer spending, which accounts for about 70 per cent of total economic activity, fell at an annual rate of 1 per cent in second quarter, a slight improvement from the 1.2 per cent decline reported last month. Residential construction and exports also were revised to show smaller declines.

While data ranging from housing to factory activity continues to suggest the worst recession since the Great Depression has probably ended or is winding down, weak consumer spending is seen holding back the recovery momentum.

Uncertainty over the strength of the recovery has left companies reluctant to start hiring new workers, though the pace of layoffs has slowed down significantly.

Yesterday's report is the second of three estimates on second-quarter growth. The figures will be revised again next month as more information becomes available.

ASSOCIATED PRESS, REUTERS, BLOOMBERG

Source: Straits Times, 28 Aug 2009

Durable goods orders rise again; home sales surge

But analysts fear consumer spending will remain muted

(WASHINGTON) Orders for durable goods rose last month by the largest amount in two years, as the US manufacturing sector rebounded from the depths of the recession.

There was more good news yesterday when it was reported that new US home sales surged 9.6 per cent in July, rising for the fourth straight month and beating expectations as the housing market marches steadily back from its historic downturn.

The Commerce Department said yesterday that orders for goods expected to last at least three years increased 4.9 per cent in July, the third rise in the past four months. Analysts expected a 3 per cent increase. Orders for June were revised up to a 1.3 per cent drop, from a 2.2 per cent decline.

The better-than-expected durable goods and housing data followed positive readings on Tuesday about consumer sentiment and home prices.

But analysts remain concerned that all-important consumer spending will stay muted as Americans try to rebuild savings decimated by falling home prices and reduced stock portfolios.

'The factory sector is obviously enjoying a rebound in demand, some of it from abroad and some of it linked to inventory rebuilding,' Paul Ashworth, senior economist at Capital Economics, wrote in a note to clients. 'However, with the consumer still supine, we don't yet have the foundations for a sustainable recovery.'

The durable goods report, however, showed that orders for non-defence capital goods excluding aircraft, a key measure of business investment, dropped 0.3 per cent. Some economists expected that category to fall after rising in May and June.

The Commerce Department also said yesterday that sales of new homes rose to a seasonally adjusted annual rate of 433,000 from an upwardly revised June rate of 395,000. Sales are now up 32 per cent from the bottom in January, but off 69 per cent from the frenzied peak four years ago.

Last month's sales pace was the strongest since September and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 390,000 units. The last time sales rose so dramatically was in February 2005.

The median sales price of US$210,100, however, was still down 11.5 per cent from US$237,300 a year earlier.

There were 271,000 new homes for sale at the end of July, down more than 3 per cent from May. At the current sales pace, that represents 7.5 months of supply - the lowest since April 2007.

The decline means builders have scaled back construction to the point where supply and demand are coming into balance. -- AP

Source: Business Times, 27 Aug 2009

US economy on verge of recovery: Fed chief

Prospects for a return to growth around the globe in near term appear good, he says

FEDERAL Reserve chairman Ben Bernanke said yesterday that the US economy is on the verge of a long-awaited recovery after enduring a brutal recession and the worst financial crisis since the Great Depression.

Economic activity in both the United States and around the world appears to be 'levelling out', and 'the prospects for a return to growth in the near term appear good', Mr Bernanke said in a speech at an annual Fed conference here.

Major stock indicators surged more than one per cent in early trading yesterday, including the Dow Jones industrials, which rose about 135 points.

The Dow had been up about 50 points prior to Mr Bernanke's comments. Meanwhile, Treasury prices tumbled, pushing yields sharply higher, as investors no longer needed the safety of government debt.

Mr Bernanke's upbeat assessment was consistent with the Fed's observations earlier this month as it took a small step towards pulling back some emergency plans to revive the economy.





Still, Mr Bernanke stressed yesterday that despite much progress in stabilising financial markets and trying to bust through credit clogs, consumers and businesses are still having trouble getting loans. The situation is not back to normal, he said.

Restoring the free flow of credit is a critical component to a lasting recovery. 'Although we have avoided the worst, difficult challenges still lie ahead,' Mr Bernanke told the gathering. 'We must work together to build on the gains already made to secure a sustained economic recovery.'

Strains in financial markets worldwide persist. Financial institutions face 'significant additional losses' on soured investments and many businesses and households are experiencing 'considerable difficulty' in getting loans, he said.

The Fed chief's remarks come two years after the financial crisis broke out and nearly one year after it had deepened to the point of sending the nation into a near meltdown. The bulk of Mr Bernanke's speech was a chronicle of the extraordinary events of the past year. Financial markets took a turn for the worst starting last September and into October, nearly shutting down the flow of credit.

The crisis felled storied Wall Street firms and forced the government to take over mortgage giants Fannie Mae and Freddie Mac, as well as insurance titan American International Group Inc.

Despite efforts to save it, Lehman Brothers failed. It filed for bankruptcy on Sept 15, the largest in corporate history, which roiled markets worldwide.

To prop up shaky banks, the government created a US$700 billion bailout fund, a programme that proved wildly unpopular with an American public suffering fallout from the recession.

The Fed swooped in with unprecedented emergency lending programmes to fight the crisis. It eventually slashed a key bank lending rate to a record low near zero. And Congress enacted programmes to stimulate the economy, the most recent coming in February with President Barack Obama's US$787 billion package of tax cuts and increased government spending.

'Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major firms would have failed and the entire global financial system would have been at serious risk,' Mr Bernanke said.

Unlike in the 1930s, Washington policymakers this time acted aggressively and quickly to contain the crisis, said Mr Bernanke, a scholar of the Great Depression. 'As severe as the economic impact has been, however, the outcome could have been decidedly worse.'

Global cooperation in battling the crisis was crucial, with central banks slashing interest rates and the US and other governments delivering fiscal stimulus, he noted.

'The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge,' the Fed chief observed.

Sponsored by the Federal Reserve Bank of Kansas City, the conference draws a virtual who's who of the financial world - Mr Bernanke's counterparts in other countries, academics and economists. -- AP

Source: Business Times, 22 Aug 2009

Big Government is no small answer

SO IT seems that we aren't going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

Just to be clear: The economic situation remains terrible, indeed worse than almost anyone thought possible not long ago. The United States has lost 6.7 million jobs since the recession began. Once you take into account the need to find employment for a growing working-age population, the US is probably around nine million jobs short of where it should be.

And the job market still hasn't turned around - that slight dip in the measured unemployment rate last month was probably a statistical fluke. The US has not yet reached the point at which things are actually improving; for now, all we have to celebrate are indications that things are getting worse more slowly.

For all that, however, the latest flurry of economic reports suggests that the US economy has backed up several paces from the edge of the abyss.

A few months ago, the possibility of falling into the abyss seemed all too real. The financial panic late last year was as severe, in some ways, as the banking panic of the early 1930s, and for a while key economic indicators - world trade, world industrial production, even stock prices - were falling as fast as or faster than they did in 1929-30.

But in the 1930s, the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year.

So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.

Probably the most important aspect of the government's role in this crisis isn't what it has done, but what it hasn't done: Unlike the private sector, the federal government hasn't slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security cheques are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers and soldiers, are still being paid.

All of this has helped support the economy in its time of need, in a way that didn't happen back in the 1930s, when federal spending was a much smaller percentage of GDP. And yes, this means that budget deficits - which are a bad thing in normal times - are actually a good thing right now.

In addition to having this 'automatic' stabilising effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it's possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts, things would have been much worse.

The point is that this time, unlike in the 1930s, the government didn't take a hands-off attitude while much of the banking system collapsed. And that's another reason we're not living through Great Depression II.

Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act - aka the Barack Obama stimulus plan - was too small. Nonetheless, reasonable estimates suggest that a million more Americans are working now than would have been employed without that plan - a number that will grow over time - and that the stimulus has played a significant role in pulling the economy out of its free fall.

All in all, then, the government has played a crucial stabilising role in this economic crisis. Former president Ronald Reagan was wrong: Sometimes the private sector is the problem, and government is the solution.

And aren't you glad that right now the government is being run by people who don't hate government?

We don't know what the economic policies of a McCain-Palin administration would have been. We do know, however, what Republicans in opposition have been saying - and it boils down to demanding that the government stop standing in the way of a possible depression.

I'm not just talking about opposition to the stimulus. Leading Republicans want to do away with automatic stabilisers, too. Back in March, Mr John Boehner, the House Minority Leader, declared that since families were suffering, 'it's time for government to tighten their belts and show the American people that we 'get' it'. Fortunately, his advice was ignored.

I'm still very worried about the economy. There's still, I fear, a substantial chance that unemployment will remain high for a very long time. But we appear to have averted the worst: Utter catastrophe no longer seems likely.

And Big Government, run by people who understand its virtues, is the reason why.

NEW YORK TIMES

Source: Straits Times, 12 Aug 2009

Speed of recovery in US remains uncertain

WASHINGTON: The worst US recession since the Great Depression will probably end in the third quarter, but uncertainty exists over the speed and duration of the recovery, according to the most recent survey of private economists.

The Blue Chip Economic Indicators survey of private economists released on Monday showed about 90 per cent of the respondents surveyed believe the economic downturn will be declared to have ended this quarter.

This upbeat assessment followed recent government data showing that gross domestic product (GDP) contracted at a shallow 1 per cent rate in the second quarter after sinking 6.4 per cent in the January to March quarter.

Separately, Federal Reserve policymakers began a two-day meeting yesterday amid rising signs that the recession is receding but they are not expected to ease aggressive efforts to boost growth until recovery is well under way.

The Federal Open Market Committee (FOMC) is widely anticipated to hold unchanged its key federal funds rate at a historically low range of zero to 0.25per cent to spur lending and economic activity.

Economists said the financial markets will be closely watching the FOMC's statement accompanying its interest rate decision today for clues about the momentum of the world's largest economy.

Recent data, including housing and key labour market indicators, have suggested a bottoming out in the recession and that the economy was close to turning the corner. The economy slipped into recession in December2007.

'Debate now centres on the speed, strength and durability of the recovery,' the Blue Chip survey said.

It showed that nearly two-thirds of respondents believed the economy was set for a U-shaped recovery, marked by below-trend growth in GDP before stronger growth takes hold in the second half of next year.

About 17 per cent of the respondents anticipated a V-shaped rebound, where growth pulled back to its trend rate on a sustained basis, while the same percentage fretted that a W-shaped recovery could follow, the survey showed.

'In their view, GDP growth will pop higher for a quarter or two only to falter again before a lasting recovery takes hold,' the survey said.

Growth in the second half was expected to garner support from a reduction in the pace of business inventory liquidation, marginal improvements in consumer spending and residential investment. The survey predicted that non-residential investment, however, would remain a drag on GDP.

Despite the improved economic picture, unemployment was expected to remain a problem, with the jobless rate predicted to peak at just over 10 per cent late this year or early next year, the survey showed. It was seen falling only slowly thereafter.

Government data on Friday showed the unemployment rate nudged down to 9.4 per cent last month from 9.5 per cent in June, but mostly because many people dropped out of the labour force.

'About 70 per cent of the panellists believe the jobless rate will not dip below 7 per cent on a sustained basis until the second half of 2012 or later,' the survey said.

However, job losses could fade late this year or early next year and payrolls start to expand as companies rebuild inventories, which should lengthen the work week, according to the survey.

REUTERS, AGENCE FRANCE-PRESSE

Source: Straits Times, 12 Aug 2009