Economists are surprised at the rate of growth in retail sales because the unemployment rate is still very high and people are not saving as much as before. The news that manufacturing production has increased in New York is a positive sign because the manufacturing sector will play an important part in the economy’s recovery. The reason why growth has now suddenly started to pick up is due to lower gas prices and also the effects of the earthquake and tsunami in Japan have started to wear off. Even though the stock market is performing above expectations, investors are cautious due to the debt crisis in Europe. There is a strong possibility that the Fed will attempt to stimulate demand and hiring in the early part of next year. The main concern is that the European debt crisis will spill over into America. Consumer spending is up from previous quarters, but many experts are worried that much of this is coming from savings rather than through cash. Because consumer spending makes up most of U.S. economic activity, it is a key indicator to judge how well the economy is performing.
I think that the growth in the American economy is only short term. Even though the economy is performing better than most experts had predicted, I feel that it is only delaying the inevitable. In all likelihood, the America economy will enter into a double-dip recession sometime over the next 12 months. Even though retail and consumer spending are up, these are only short term indicators and cannot be relied upon for the long term. What is even more disconcerting is that many Americans are choosing to cut into their savings in order to fund their consumer purchases. This does not lead to sustained growth because if savings decrease, investment will also go down. A strong U.S. economy needs to have good savings so that the government can afford to pay of the U.S. debt. Spending more money isn’t going to solve the problem—only by saving can the economy get back to ...Show more