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May 6th 2005

Is US economy cooling off?

Various economic statistics indicate the US economy is in a stage of "cooling off." Is this downturn temporary, or it a sign of things to come? Some analysts think the economy needs a recession to let the air out of bubbles that have formed in various asset markets. Many investors have already priced slower growth expectations into stock prices, which explains the recent stock market decline. Other analysts think the current down-turn represents an anomaly, and predict a full recovery to be borne out in the next release of economic statistics. They point to slight decline in inventory statistics, which signal an increase in aggregate demand. Consumption will also be buoyed by a recent decline in energy prices, which will trickle down into lower fuel costs. IT and transportation spending have witnessed double digit percentage increases in recent months. Analysts from Morgan Stanley are wary:

To be sure, risks abound: A resumption of stronger domestic demand growth is no guarantee that US output will follow; some will doubtless spill into imports.  And weakness abroad still menaces exports. [We think] the Eurozone economy is on the brink of recession, with the decline in business confidence raising the risk of a self-fulfilling prophecy.

Read More: United States: Roadmap for the Rebound

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Posted by Adam Kritzer | in Economic Indicators, US Dollar | No Comments »

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