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April 29, 2009

American depression worse than expected

POLITICS - The American economy shrank at a worse-than-expected 6.1% pace at the start of this year as sharp cutbacks by businesses and the biggest drop in United States exports in 40 years overwhelmed a rebound in consumer spending.

The United States Commerce Department's report, released today, dashed hopes that the recession's grip on the country loosened in the first quarter. Economists surveyed by Thomson Reuters expected a five per cent annual decline, but that number has already been surpassed.

Last year the US economy shrunk 6.3%, the biggest decline in 25 years. If the American economy continues to shrink rapidly it could reach a 14% to 18% decline by the end of 2009.

Consumer spending was up 2.2% in January to March, but job numbers and overall exports are still dropping dramatically. The problem? Consumers seem to be buying too much stuff made overseas and not made in North America.

Meanwhile Americans cut spending on home building, commercial construction, equipment and software, and inventories of goods. Sales of U.S. goods to foreign buyers plunged. Even the U.S. government trimmed spending, despite the new stimulus package.

The recession, which officially began in December 2007 has become a technical depression (a depression is any recession that lasts longer than a year) and has removed 5.1 million jobs. Some economists believe the depression started in August 2007.

President Barack Obama is counting on his $787 billion stimulus of tax cuts and increased government spending on big public works projects to help bolster economic activity later in 2009. George W. Bush's bailout of the investment banks has seemingly done nothing to prevent the current crisis.

The recent outbreak of the swine flu, which has spread to the United States, poses a new potential danger. The flu is expected to stifle consumerism, trade, tourism and the death toll will wreak financial havoc.

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