(Menafn - ecPulse)
The U.S. economy had a busy week highlighted by the second GDP estimate which was released on Friday and signaled the U.S. economy expanded over a strong pace during the last quarter of 2009, while the Feds' Chairman Ben S. Bernanke testified before the Congress over the Feds' monetary policy and the current economic condition, meanwhile, stock markets generally dropped and the U.S, dollar gained against most major currencies, as investors were rather pessimistic.
The first fundamental to be released this week was from the housing market, as the S&P/CaseShiller Composite-20 index was released for the month of December, where house prices in 20 metropolitan cities in the United States were reported to have dropped in December by 3.08%, as the housing market continues its struggle amid its worst slump In more than seven decades.
The new home sales index also signaled that the housing market is still stabilizing, where new home sales dropped by 11.2% in January to an annualized rate of 309,000, where this indeed confirms that the housing market will need more time to recover, as elevated unemployment, tightened credit conditions, and rising foreclosures continue to weigh down on housing market activity.
Moreover, the existing home sales index signaled that the housing market is still stabilizing, where the existing home sales declined in January by 7.2% to an annual rate of 5.05 million units, well below market expectations, as this indeed shows that the housing market will need more time before it can grow over a strong pace, even as the government continues to support the house market, since overall economic conditions remain weak.
Meanwhile, the U.S. Conference Board released its consumer confidence index, where confidence was reported to have dropped in February to 46.0 from 56.5, as consumers feel that the ongoing weak conditions will prevail for some time, as Americans still find it difficult to get a new job, while overall conditions are still fragile, and accordingly consumers are still concerned over the outlook for the economy. The University of Michigan also signaled that confidence eased in February, as the economic conditions index retreated, while the confidence index also showed that inflation expectations remained stable in February.
Meanwhile, the Feds' Chairman Ben Bernanke testified before the Congress over the current outlook for the economy and the Feds' monetary policy, where Bernanke signaled that the economy is still recovering from the worst recession since WWII and that the recovery will need more time, as elevated unemployment and tightened credit conditions continue to weigh down on economic growth.
Bernanke also signaled that the Feds are still focused on reviving economic growth rather than focusing on inflation, as the Feds believe that inflation will remain subdued for some time amid the ongoing weak economic conditions, while Bernanke also confirmed that he expect interest rates to remain at exceptionally low levels for an extended period of time, since the economy still needs low interest rates to ensure the progress of the recovery.
Bernanke also talked about the Feds' decision to hike the discount rate by 25 basis points to 0.75%, as he signaled that the decision is only a "normalization" to the Feds' monetary policy, and that the decision doesn't mean that the Feds shifted their monetary policy to focus on inflation, as reviving economic growth and ensuring that the economy doesn't suffer any setbacks remains the Feds' No.1 priority.
Moreover, the durable goods orders index signaled an increase, though the excluding transportations durable goods dropped, as demand remains somehow crippled by the ongoing weak conditions, where consumer spending though improving gradually, but remains under pressure from elevated unemployment and tightened credit conditions.
Meanwhile, the second GDP estimate for the fourth quarter of 2009 signaled that the U.S. economy expanded beyond expectations, even though consumer spending eased during the quarter, yet the strong growth in investments and inventories more than made up for easing spending, as the U.S. economy expanded by a staggering 5.9% following the prior estimate for the same quarter, which indicated the U.S. economy expanded by 5.7%.
Even though the U.S. economy continues to report strong growth levels, however, this growth is now based on consumer spending, where consumer spending accounts for nearly 70% of U.S. GDP, and accordingly, we should expect economic growth to falter over the upcoming few quarters, since a 9.7% unemployment rate accompanies by tightened credit conditions will surely be dragging down economic activity.
Meanwhile, activity in the manufacturing sector continues to show further expansion, where the Chicago PMI signaled activity increased in February to 62.6 from 61.5 reported back in January. The manufacturing sector continues to show an optimistic view, where activity has been increasing over the past few months, as demand levels started to improve all around the globe.
The U.S. economy will probably need more time before we can see a strong rebound in economic activity, where the recovery continues to show a rather gradual and a slow improvement in economic activity, and accordingly, we should expect the U.S. economy to continue its journey towards its long term growth potentials, however, we shouldn't expect too much for now, as the economy is still facing huge challenges ahead…