If you've flipped through the news, the Department of Labor just released a ton of economic data for July:
- 131,000 jobs were lost.
- The Unemployment Rate stayed at 9.5% for a second month in a row.
- Private employment rose by 71,000 jobs after increasing by 31,000 in June.
- Hourly earnings rose 0.2%.
Stayed tuned: consumer credit will be released by 3:00 PM today.
On Main Street, a lot of consumers are probably wondering: What does this all mean for economic recovery? In the first half of 2010, the U.S. showed positive signs. Jobless claims began to drop and corporations reported stronger earnings.
Analysts, however, expected this growth to lose momentum as boosts from economic policty measures (think: tax cuts to spur consumer spending and incentives to prop up the real estate and auto sectors) began to wane. While business news headlines and spewing data may take us on a roller coaster ride of highs and lows each month, economists are tracking the bigger, long-term picture of where our recovery is likely headed.
Let’s go through the three possible scenarios.
This indicates a sharp rebound (hence the V). Analysts say consumers that have been hibernating since December 2007, when the U.S. officially slid into recession, will return to a state of demand. Throughout history, consumers were the main drivers of economic recoveries.
In this scenario, a return to normalcy will be slow and drawn out. Besides the end of government programs, this forecast fears that weak private demand will stunt growth, leading to a U-shaped recovery. Final sales growth will remain very soft because spending is constrained by the contraction in bank credit, as well as losses in income and savings.
A stable economy is always vulnerable to external and uncontrolled risks. Weather may hike commodity prices. On August 5, a drought in Russia just sent wheat prices to record highs. Another shock to the system would be a policy going unexpectedly awry. For example, growth may be minimal as the government’s financial assistance programs from 2009 ends. Instances like these can lead to a double-dip (as you might’ve heard a lot in the news) or a W-shaped recession.
While plenty of predictions can be made and speculation can go on and on, no one can really know what the future holds. The important thing is have a grasp on the situation to know how all of those news headlines will affect your wallet.