US RECOVERING SLOWLY…
IT is not all bad news. The American economy is showing signs of life again. The best indication was that Wal-Mart, the giant US retailer, finally reported its first quarter of increased US sales, breaking a dismal nine quarter run of declines. This improvement is industry-wide, as witnessed by the 0.5 per cent month on month rise in retail sales in October. The latest manufacturing surveys aren’t bad either, suggesting expansion in factory output. Jobs numbers have been revised upwards going back a few months. The economy is likely to expand at a semi-decent rate in the fourth quarter, as it did in the third. Given the importance of America to global demand, this is also very good for Britain.
This doesn’t mean that the US is our of the woods; it faces, among other problems, the possibility of renewed budgetary paralysis. Millions of people remain affected by unemployment or under-employment, wealth levels have plummeted and morale remains subdued. America’s level of economic output is now slightly higher than it was at the peak of the boom, before the recession. This is in stark contrast to the Eurozone, Japan and Britain, where output has yet to catch up. It is bizarre, therefore, that America still feels even more scarred by the downturn than Britain.
BUT UK IN THE DUMPS
So much for today’s dose of relative optimism. There is an interesting follow-up to yesterday’s column, where I bemoaned Britain’s culture of excessive private and public sector leverage (still at 291 per cent of GDP excluding financial firms), and predicted years of depressed consumer spending as we slowly readjust.
Andrew Lilico of Europe Economics estimates that the UK’s sustainable rate of growth over the next decade may have fallen to just 1.1 per cent a year. Yet the Office for Budget Responsibility still estimates sustainable growth to be 2.35 per cent per year, falling to 2.1 per cent by 2015. Somebody has got it wrong; if, as I suspect, it is the OBR the coalition as well as Labour will have to revise all of their spending plans.
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