The U.S. economy had little to share throughout this past week, where lack of fundamentals dominated this week, and accordingly the outlook for the world’s largest economy didn’t change, as the economy is still undergoing recovery from the worst recession since WWII.
The start was with the wholesale inventories for the month of January, where inventories dropped by 0.2% following the prior revised drop of 1.0%, inventories provided strong support to economic growth during the fourth quarter, as producers are gradually building their inventories, though the pace remains generally weak.
Meanwhile business inventories were flat in January following the prior revised drop of 0.3%, however, it’s rather clear that producers are still cautious in building inventory levels, since the outlook for demand remains somehow weak amid elevated unemployment and tightened credit conditions, and we should expect producers to take their time, before they start to produce over a strong pace.
Moreover, the U.S. monthly budget statement revealed a record deficit in February, as the U.S. government continues to support the economy through the fiscal stimulus, which indeed sent the budget deficit to unprecedented levels, and might have a drastic effect on the U.S. dollar over the long term.
Nevertheless, the U.S. dollar remained generally strong against its major counterparts, since the improvement witnessed in the U.S. economy is yet to be matched by other major economies around the world, and that is providing the U.S. dollar with strong momentum against other major currencies, and we should expect the U.S. dollar to extend its gains over the short term, however, the challenges provided by a widening deficit might indeed hammer the U.S. dollar over longer terms.
Moreover, the U.S. trade deficit narrowed in January according to the U.S. Commerce Department, however, despite the improvement in the trade balance, but investors were more concerned with the drop in exports, as that was seen as a major sign that global demand remains generally weak, and accordingly, it will take global growth more time to recover from the worst recession since WWII.
Meanwhile, consumer spending which accounts for nearly two thirds of U.S. economic activity is still improving though over a moderate pace, but given the ongoing weak conditions from elevated unemployment levels to tightened credit conditions, the rise in spending represents an encouraging sign over the outlook for the U.S. economy.
The retail sales index for the month of February proved that spending was still resilient to the ongoing weak conditions, since the huge snowstorms during February led analysts to lower their expectations for retail sales, yet retail sale managed to rise above expectations to provide hope that the U.S. economy will continue its recovery process and will eventually reach prosperity.
Meanwhile, consumer confidence remains somewhat weak, yet we shouldn’t deny that overall confidence continues to improve, at least this is what we witnessed over the past few months, however, as the pace of recovery seemed to have eased over the past period, confidence also retreated, where the University of Michigan signaled in its preliminary estimate for March that confidence declined to 72.5 from February’s estimate of 73.6 and also below median estimates.
The U.S. economy is emerging safely from the worst recession since WWII, however, the U.S. economy will also need some time before conditions reach full stability, and accordingly, we should expect activity to continue stabilizing during the first half of 2010, while the U.S. economy should start to grow over a stronger pace during the second half of 2010, before the economy can reach full stability probably in 2011…
