The Economy in the United States

The recovery is underway. The recent and unexpected Egyptian political crisis and its possible outcomes are dominating the headlines and editorial sections of the world’s leading media sources since last week. News regarding economic progress has taken a back seat, despite the fact that in recent days relevant information has been published that suggests that the recovery continues and is strengthening, especially in the United States. Last Friday, that country´s GDP was released for the fourth quarter of 2010. The economy grew 2.9 percent last year during the fourth quarter to an annual rate of 3.2 percent. For the first time since the fourth quarter of 2007, the GDP surpassed its pre-recession level, marking the beginning in a new expansion phase.

The surprise was the strong upturn in the final demand, especially in private consumption, despite a high unemployment rate and the fact that restrictive conditions persist in the consumer credit market. In quarterly terms, the final demand fell 2.6 percent in 2008. In line with the GDP in the middle of the recession, it dropped 1.3 percent again in 2009, at the beginning of the upturn, despite the fact that the GDP stopped its decline, supported by an accumulation of inventory. The opposite occurred in 2010: the growth in the final demand, 3.5 percent, surpassed the growth of the economy. In the fourth quarter, the accumulation of inventories fell sharply taking away 3.4 percent from the growth of the GDP. Leaving out this factor, the GDP would have grown 6.6 percent. The negative effect of the drop in inventories will reverse itself this year.

Private consumption grew on average 2.7 percent in 2010 and 4.3 percent during the fourth quarter. In 2009, it barely grew 0.2 percent and contracted 1.9 percent in the 2008 recession. Its current level surpassed the maximum pre-recession level by 1 percent. Despite the fact that company spending on construction continues to decline, total private investment grew 6.7 percent and 4.2 percent in 2010 in the fourth quarter, but it is still 18.4 percent lower than its maximum pre-recession level. During 2009 and 2008 investment fell 13.1 percent and 12.8 percent respectively. Exports bolstered by the strong growth of emerging economies head the recovery in the U.S.; in 2010 they grew 8.6 percent and are 5.7 percent higher than their pre-recession maximums.

The case of public spending is interesting. It rose 1.4 in 2010 and contracted to an annual rate of 0.6 percent in the fourth quarter; it grew 0.9 percent in 2009 and 3 percent in the 2008 recession. At the end of 2010, public spending was 5.3 percent greater than in 2007, when the recession began. Average growth was 1.7 percent, which was similar to the rate recorded in the pre-recession years. I do not believe a significant role in the generation of the untenable deficit of public finances can be attributed to the spending policy. A significant part is due to cyclical factors, a reduction in the collection of taxes and greater transfers. Despite the good news, the U.S. economy recorded a negative product gap of 6 percent. Assuming, with a certain dose of optimism, that the economy will grow between 3 and 4 percent in the coming years, to return to the level of product potential and high employment will require no less than four years.

Other news that has not received due attention is the publication this Tuesday of the report on the manufacturing sector. The index rallied to its highest level in seven years. The employment index in the sector rose to its highest level in 38 years. This suggests that the U.S. manufacturing sector will continue to grow strongly, attracting more Mexican exports. Good news for Mexico.