America's Economic Recession

According to the preliminary data released by US Department of Commerce on October 30, American economy in the third quarter shrank by 0.3 percent annual rate, which showed the worst declining rate since the economy contracted at a 1.4 percent pace in the third quarter of 2001. For the time being, the U.S. economy in the fourth quarter will probably will continue to decline. As a result, America’s recession will be inevitable.

The unoptimistic American economic perspective is mainly caused by the fact that financial crisis affected the economic fundamentals. Subjecting to the deterioration of financial crisis, US loan market is on the edge of stagnation, going with unemployment-increasing and consumption-decreasing. American economy belongs to consumption-driven type, but individual consuming ratcheted back at a 3.1 percent pace, the worst contracting rate in 28 years, also the first drop since 1991. If there is anything wrong with consumption, this economy-engine, naturally, the macro economy of America will be encumbered.

But not all the economic data in the third quarter were negative. It could be said that these data were according to expectation and also against expectation. On one hand, the negative increase was not surprising, as the American Federal Reserve Bank announced the day before that American “downside risk” was still existing. One the other hand, the economic shrinking rate was not as deep as the 0.5 percent annualized decline analysts predicted.

The third quarter probably could be the turning point of American economy. According to the general idea, negative increase in two continuous quarters could be considered as the beginning of recession. Considering the probability of the fall in the fourth quarter, U.S. economists generally believed that it was the beginning of recession since the third quarter.

However, in terms of the U.S. economy there are great uncertainties. Currently financial crisis is still on the go, but under the motivating of a series of bold policies made by U.S. government to save the market, the stagnation of loan market has been lightly reconditioned. There could be some negative increase in the fourth quarter, but the problem is that how deep it could be. How to avoid severe recession is the big trial waiting for U.S. leaders.