While it’s not back on its feet yet, the U.S. economy is proving more resilient than many naysayers predicted, according to September’s Monthly Outlook from Wells Fargo’s economics group.
If modest gains in July and August turn out to be an upward trend, which Wells Fargo deems likely, GDP will follow suit. While it is currently weak, at 1.6% in the second quarter, that growth should compensate in part for the government’s stimulus packages, which are now winding down and will soon be gone.
Meanwhile, business fixed investment rose “solidly” in the second quarter and consumer spending and savings rates are also on the rise.
Wells expects the 1.6% GDP growth rate to hold steady for the remainder of the year, but will pick up speed in 2011, so long as the Federal Reserve doesn’t raise interest rates.
While a double dip is unlikely in the U.S., Wells is calling on the government for a few more sandbags. “We have never been in the double-dip camp,” its analysts write, but the shift from stimulus support to private sector growth could be a bumpy ride. “The increased risks of a double dip should prompt additional monetary and fiscal stimulus [sic], not because the economy is backsliding but rather because the consequences of a second economic slump would be so costly to counteract.”
Globally, though, a double dip is more likely, particularly in Japan, although it won’t happen so long as Asia “remains buoyant,” the report says. Unlike Europe and the U.S., Asia didn’t spend the past decade miring itself in debt, so its banking systems remain healthy and credit is still flowing freely.
Meanwhile, Europe’s labor market is now stable, which should positively impact consumer spending, and the region seems to have narrowly sidestepped another downturn.
Latin American economies remain the healthiest of the lot. They weren’t overly leveraged before the crash, they’re enjoying strong economic growth and the risk of recession in the region is low, Wells says.