| Tarnished Linings |
1 September2003
|
US Economy Isn't Out of the Woods, Yet
The US GDP grew 3.1% in the second quarter of 2003 according to the Commerce Department. Consumer spending was strong, defense spending increased faster than it had since the Korean War, and there was evidence that businesses are spending more than in recent months. Analysts are up-beat, and stock brokers should come back to their desks after the Labor Day week-end ready to make profits. A lousy job market, though, could still sink the whole thing.
Jobless claims rose 3,000 to 394,000 in the week of August 23. Unemployment is at 6.2%. And the New York Times employment section last Sunday ran a piece on the under-employed, a rising statistic in the US economy.
Profits in any economy rest on spending by customers. As businesses start buying (and the evidence is that they have done, slowly), there should be a huge increase in economic activity. However, if this is offset by a slackening consumer sector, brought on by credit exhaustion and concerns about jobs and raises, sluggish growth is in the cards.
Worse, bond yields have started rising, suggesting that borrowing and paying off loans is about to get more expensive. This should also dampen spending. The champagne should probably stay on ice until after Christmas. By then, the third quarter numbers will be in, and the holiday spending surge will tell the world whether the US economy is taking off or still sputtering.
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