Has US managed to avert RECESSION?

The recession scare is back with the United States' economy plunging into another grave crisis. The US economy is likely to face another recession with mounting debt, dip in economic growth rates and credit rating.

The US had faced a double dip recession in 1980 and 1981-82. A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year.

Fearing a recession, the stock markets in US crashed on Thursday having spiraling effects on India as well. The Sensex ended at 17,306, down 387 points on Friday.

A downgrade of US government debt sent equity shares tumbling on Monday, with the BSE benchmark Sensex and the 50-unit S&P CNX Nifty hitting their lowest levels in nearly 14 months.

However, there is a ray of hope for the economy as job growth rate rose more than expected in July on private companies' hiring spree.

The unemployment rate dipped to 9.1 per cent from 9.2 per cent in June.

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The US economy is stagnating with no substantial improvement in the manufacturing sector. The service sector is growing at the slowest pace.

The economy saw a sluggish growth with the annual rate of less than 1 percent for the first six months of this year.

President Barack Obama signed a bill this week raising the US debt ceiling by at least $2.1 trillion.

Besides the US, several European countries are also facing debt crisis. After Ireland and Greece, Italy and Spain have sought assistance from the European Union.

on the downfall of the US economy

India to be hit

A slowdown in the US economy will adversely affects India. Indian companies with big tickets deals in the US would see their profit margins shrinking.

India's exports to US will slow down, which in turn will hit India's GDP. The worries for exporters will grow as rupee strengthens further against the dollar.

However, the Prime Minister's Economic Advisory Council said. It said that the global economic and financial situation was unlikely to improve (in the foreseeable future) and this could impact the domestic economy.

A weak dollar could bring more foreign money to Indian markets.

US Economy

2nd quarter 2011: 1.3 per cent
1st quarter 2011: 0.4 per cent

The GDP increased at a slow pace of 1.3 percent in the second quarter of 2011, according Bureau of Economic Analysis.  In the first quarter, real GDP increased 0.4 percent.

Employment

The number of unemployed persons were 14.1 million in June. The unemployment rate was 9.2 per cent. This has moderated to 9.1 per cent in July.

Since March, the number of unemployed persons has increased by 545,000, and the unemployment rate has risen by 0.4 percentage point. The labour force, at 153.4 million, changed little over the month.

US Balance of Payments

The US current-account deficit increased $7.1 billion to $119.3 billion (preliminary) in the first quarter of 2011.

International Investment Position

The US net international investment position at yearend 2010 was -$2,471.0 billion (preliminary), as the value of foreign investments in the United States exceeded the value of U.S. investments abroad.

International Trade in Goods and Services

Trade Balance:

May 2011: -$50.2 billion
April 2011: -$43.6 billion

The total May exports of $174.9 billion and imports of $225.1 billion resulted in a goods and services deficit of $50.2 billion.

Manufacturing slows down

An evident sign of a recession is the fall in manufacturing growth. The purchasing managers indexes (PMI) fell drastically in the US and Europe.

Consumer spending

The US economy grew at a lower rate of 1.8 percent annual rate in the first three months of the year. Consumer spending has fallen considerably in July, the biggest fall in two years.

Consumer spending slowed in the first quarter of 2011, reflecting a slowdown in durable goods, in nondurable goods, and in services. The largest contributor to the slowdown in consumer spending was a slowdown in motor vehicles and parts.

Exports

Exports slowed down in both goods and services. Other private services were the largest contributor to the slowdown in exports of services.

The imports rose, reflecting upturns in imports of both goods and services. A smaller decrease in imports of petroleum and products was the largest contributor to the rise in imports.

Personal income

Personal income increased $18.7 billion, or 0.1 percent, and disposable personal income (DPI) increased $16.3 billion, or 0.1 percent, in June, according to the Bureau of Economic Analysis.

Personal consumption expenditures (PCE) decreased $21.9 billion, or 0.2 percent.

Industry's performance

The profits of domestic industries increased $84.9 billion, or 6.4 per cent, after decreasing $105.9 billion, or 7.4 per cent.

Profits of domestic financial industries decreased $57.4 billion, or 13.2 per cent, after increasing $42.1 billion, or 10.7 per cent.