Question

After reading the article below, make sure to answer the following questions

1. List three ways in which the U.S. economy has shown strength in 2019.

2. How many years has it now been since the United States last experienced a recession?

3. What are two signs that the U.S. economy may be slowing down in the second quarter? Please give a 3 sentence explanation of each sign.Do these appear to be one-time issues or do they potentially mark the start of a longer downturn Make sure to explain your answer.

U.S. ECONOMY LOST SOME STEAM AT START OF SECOND QUARTER

 

The U.S. economy got off to a sluggish start in the second quarter, with both consumers and manufacturers pulling back in April amid trade tensions, a global slowdown and waning effects of the 2017 tax cuts.

Retail sales (Links to an external site.) fell a seasonally adjusted 0.2% in April from the previous month, the Commerce Department said Wednesday, driven by declines in categories such as electronics, home improvement, motor vehicles, auto parts and at online shopping businesses.

Factory output (Links to an external site.) dropped a steeper 0.5% in April from March, according to Federal Reserve data, the third monthly decline in the past four months. It was down 2.1% in the first quarter on an annualized basis.

A closely watched measure of U.S. freight demand also is sending a troubling signal. The Cass Freight Index for shipments dropped 3.2% in April, the fifth straight month in negative territory. The authors of the report, Cass Information Systems, said the numbers signal “material and growing downside risk to the economic outlook.”

Together, the reports suggest the U.S. economy lost momentum after growing at a 3.2% annual rate (Links to an external site.) in the first quarter.

Macroeconomic Advisers, a forecasting firm, lowered its second-quarter economic growth estimate to a 2% rate from 2.1% in response. Oxford Economics lowered its forecast to a 1.6% pace from 1.7%.

Economists had expected the second quarter to be weaker than the first, when output was buoyed in part by a decline in imports and an increase in inventories, offsetting weaker gains in consumer spending and business investment. But the new data suggested there could be “maybe a little more of a step down than we initially thought,” said Michael Feroli, chief economist at J.P. Morgan.

Overall, the U.S. economy remains strong. Employers added 263,000 jobs  (Links to an external site.)in April, unemployment reached a near-50-year low and wages continued to inch up—all encouraging signs for household pocketbooks. Economists warned against overreacting to Wednesday’s batch of wobbly data.

“As long as the labor market holds in, I don’t think it’s an existential issue for the expansion,” which began nearly 10 years ago, said Mr. Feroli.

If he is right, the U.S. economy in June will mark a decade without a recession, the longest stretch on record. “I think we’re going to make it to our 10th birthday,” he said.

The fall in retail sales could be partly because tax refunds weren’t as generous as consumers expected, perhaps prompting households to put off major purchases, he said.

Sales have been volatile in recent months, dropping in February before bouncing back in March (Links to an external site.).

Economists also saw the April retail-sales decline as a sign that households might be rattled by the trade dispute between the U.S. and China. Last week President Trump said that tariffs on $200 billion in Chinese goods would rise to 25% from 10%. The president left open the possibility of additional actions. China retaliated (Links to an external site.) by raising tariffs on $60 billion of U.S. imports.

As the stimulus from recent tax cuts and increased federal spending dissipates and the trade fight escalates, “you’re going to see stronger headwinds that will curb growth in consumer spending,” said Gregory Daco, chief U.S. economist at Oxford Economics.

Some of the recent manufacturing contraction is likely due to the large buildup in inventories in the first quarter, analysts said. That means factories don’t need to produce as much to meet demand.

But the persistent weakness since the start of the year suggests American factories have been squeezed by trade tensions, a weaker global economy and a strong dollar, which makes U.S. exports more expensive in world markets.

“I don’t think there’s any way to put lipstick on the manufacturing numbers,” said Joshua Shapiro, chief U.S. economist at MFR Inc. “The growth isn’t there. The domestic demand in the U.S. is pretty decent, but export demand is weakening.”

At Thomaston Mills, a bedsheet maker in Thomaston, Ga., production is slower this year because orders are down. Custom orders for the company’s bedding and towels typically rise when hoteliers are confident in the economy, said plant manager Jimmy Bond.

Notebook maker Top Flight Inc. recently received a big order that will boost production for the first time in several years, said Chief Operating Officer Wejun Robinson.

But rising costs for paper, overtime and imports as a result of tariffs on goods from China are hurting the Chattanooga, Tenn.-based company’s profit, he said. Top Flight’s margins will be even thinner than expected after the Trump administration increased tariffs on goods including some notebook varieties it doesn’t make in the U.S. to 25% last Friday from 10% previously.

“We priced our products at the 10% rate,” Mr. Robinson said. “It will make a difference.”

Important U.S. trading partners such as China and Germany are going through a volatile period as fears of a broader trade war depress confidence.

Growth in Chinese retail sales, industrial output and investment in fixed assets slowed (Links to an external site.) in April despite a heavy dose of government stimulus. 

In Germany, new factory orders are slowing and major manufacturers such as Continental (Links to an external site.)AG and Daimler (Links to an external site.) AG posted lower first-quarter earnings. But domestic consumption and a strong construction sector helped support the German economy (Links to an external site.) in the first quarter.

 

Answer 1

1)The US economy remained strong in the first quarter of 2019. In April there were 263,000 jobs created. Unemployment reached a level which was low in the last 50 years .Wages continued to rise. All these say that the economy was strong in the beginning of 2019 .

2)It has been a decade ie 10 years since the US last experienced a recession.

3)Economists are of the opinion that the second quarter will be weaker than the first.Retail sales declined which might be because of the trade dispute between US and China.President Trump had said that tariffs on $200 billion on Chinese goods will rise to 25% from 10%.As a result China also raised tariffs on $60 billion on US imports.American manufacturing factories have reduced production because of the piling up of inventories.US exports have become very costly as a result of trade problems , strong dollar and weak global economy.Thus there is no growth as domestic demand is there but export demand is weak.US trading partners like China and Germany are facing problem of less confidence because of trade wars.

Fed's move of tax cut and increased government spending has not been able to give desired result because of trade fight.This has curbed growth in consumer spending.

The China US trade war is not a one time issue and appear to be prolonged matter as China wants that all tariffs that has been imposed on its exports should be removed but US wants that this should be kept as a safeguard,so that China gives honor to the commitments of US.Again China wanted that its imports from US should be in accordance to real demand but US did not accept this. US wanted China to make structural reforms in protection of property rights,technology transfer etc which will take a long time.