Home US Economy: The Good and the Bad Before the FOMC Meeting

US Economy: The Good and the Bad Before the FOMC Meeting

At the beginning of the year, the US economy seemed on track for a strong recovery. Since then, some worrying signs have emerged and the picture is more complex.

Here is a review of the good and bad indicators.  towards the FOMC meeting on April 25th:

The Good

  • Growth continues: The US economy is still growing nicely, contrary to Europe. The initial GDP figure for Q1 will be released on Friday, April 27th, and is expected to show an annual growth rate of 2.6%, not typical for a recovery, but good enough for now.
  • No Deflation Danger: Prices in the US are on the rise. The Consumer Price Index is at 2.7% and for many Americans it feels even higher, especially in fuel and food prices. The Federal Reserve doesn’t look at this, but rather at Core CPI (excluding food and fuel). Also here, 2.3% is above the target of 2%. Such price movements show that the economy is moving.
  • More Building: Recent building permits figures show a consistent rise in building. At first, this was “blamed” on the warm winter, but now it seems more serious, and gives the notion that housing found a bottom.
  • Active Consumers: Retail sales are on the rise and consumer confidence (seen in various indicators) remains OK. The US economy is driven by private consumption, and higher expectations mean more activity, even if the pockets aren’t that full.

The Bad

  • Unemployment: After a few strong months, Non-Farm Payrolls disappointed with a weak rise of 120K. Looking deeper into the report shows 5 reasons to dismiss it as temporary. But, there’s a good reason why this bullet appears here: jobless claims broke out of a very steady range for quite some time, proving to skeptics what Bernanke stated: that the underlying situation of employment is worse. Bernanke noted the employment to population ration, and others note the low participation rate as one of the economy’s main problems.
  • Stalling Industrial Production:   The ISM Manufacturing PMI, Philly Fed Index and other industrial indicators remain positive, on the growth side of numbers. These indicators, which are forward looking, are more closely watched than the actual output, which stalled. According to Lakshman Achuthan of the ECRI, this is a sign that a recession is coming. A recession doesn’t seem close, but where is the industrial growth?
  • Home Prices Still Low: The US housing sector underwent some deleveraging. There’s no doubt. But has it reached a bottom? Uncertainty remains very high. According to sales of existing homes, where most of the activity happens, this sector is still wallowing in the mire.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.