Since the second half of 2009, the U.S. economy has achieved a strong recovery, driven by three major factors: re-stockpiling, improvements in financial markets, and massive monetary and fiscal stimulus. However, with the outbreak of the European debt crisis, the prospects for U.S. economic development have once again become uncertain, and the risk of a "double-dip" recession cannot be ruled out. The reasons are mainly as follows:
The fading effect of policy stimulus will slow the pace of future economic recovery
According to the latest assessment by the Congressional Budget Office (CBO), as homebuyer tax credits, corporate tax cuts, and state government financial aid policies expire and are phased out, the stimulus effect of previous U.S. fiscal policies will gradually diminish starting from the third quarter of 2010, and may even have a negative impact. Regarding these changes, I analyze that, on one hand, in terms of GDP growth, U.S. government spending—which reflects the intensity of policy stimulus—dragged down GDP by 0.37 percentage points in the first quarter of this year, an increase in negative drag of 0.11 percentage points compared to the previous quarter. On the other hand, in terms of leading indicators, the Conference Board's Leading Economic Index for the U.S. fell by 0.1% month-on-month in April, the first such decline since March 2009. Among the 10 leading indicators, except for interest rate spreads, stock prices, average manufacturing workweek, and new orders for non-defense capital goods in manufacturing, which rose month-on-month, five indicators—building permits, supplier delivery index, real money supply, consumer expectations index, and new orders for manufacturing consumer products and materials—all fell, reflecting that economic growth will slow over the next six months. Given that the recovery of actual final demand remains weak, and with changes in the inventory cycle and the weakening of policy stimulus effects in the second half of the year, the U.S. economic growth rate will also decline.
Three factors create constraints, and sustainable consumption growth faces challenges
Based on the current situation, although U.S. personal consumption expenditure grew by 1.3% in the first quarter of 2010, the uncertain risks affecting U.S. personal consumption still exist, posing a serious challenge to a sustainable recovery in consumption. Generally speaking, real income (current and expected), credit growth, and the propensity to consume are the three most important variables determining consumption. Looking at these three factors, future consumption is unlikely to shoulder the burden of leading the economic recovery: First, over the past three months, the growth rate of real personal income for Americans has remained at a historical low without showing a clear upward trend; the slow recovery of real personal income will inhibit the rapid rise of personal consumption expenditure. Second, persistently sluggish consumer credit hinders the recovery of consumption. Judging from the write-off and default rates of real estate loans and personal credit card loans at commercial banks, the recovery vitality of these two major markets is insufficient, which will have a negative impact on the sustained growth of the U.S. recovery in the future. Third, the propensity to consume has changed significantly. Against the backdrop of persistently high unemployment and no significant increase in household wealth, the U.S. propensity to consume has shifted rapidly. In March 2010, the U.S. household savings rate had dropped sharply from its peak of 6.4% during the crisis to 2.7%. In a sense, the rapid decline in the actual propensity to save indicates that current U.S. consumption growth may have partially overdrawn future momentum.
Stimulus policies fade, and the U.S. real estate market faces the risk of a second bottoming out
First, oversupply in the real estate market is still accumulating. Currently, the number of residential foreclosure cases is constantly increasing. In the first quarter of 2010, the total number of homes foreclosed and auctioned by banks nationwide increased by 35% compared to the same period last year. Based on current trends, the total number of homes foreclosed and auctioned by banks by the end of this year will exceed 1 million. The increase in foreclosures not only causes the scale of bank bad debts to continue to expand, but because banks are listing a large number of foreclosed homes to recover funds, it will further worsen the oversupply situation in the real estate market. After a slight rebound in the second half of 2009, housing prices began to fall again in January 2010, with month-on-month declines of 0.4% and 0.9% in January and February, respectively. In addition, after a brief rise in January 2010, commercial real estate prices fell again by 2.6% month-on-month in February, a 25.8% drop compared to the same period in 2009, suggesting that the real estate market remains pessimistic. The real estate market remains a major obstacle to a stable U.S. economic recovery.
Second, there is room for a 5% to 10% decline in real estate prices. The S&P/Case-Shiller Home Price Index shows that U.S. housing prices rose by 2% annually in the first quarter, the first annual increase in recent years. However, due to the end of tax incentives and the continued increase in foreclosures, housing prices in the first quarter still fell by 3.2% compared to the fourth quarter of 2009.
Risks have not been eliminated; how to clear toxic assets will be a major challenge
Because the bursting of the subprime mortgage asset bubble brought a large amount of toxic assets into the U.S. financial system, and these toxic assets have basically not been dealt with but rather covered up by modifying accounting rules and freezing debt repayment, or moved to the Federal Reserve's balance sheet. Therefore, how to repair the balance sheets of financial institutions and the Federal Reserve and clear toxic assets will be a major challenge for the United States in the future.