The U.S. Economic Slowdown
In April 2008, “The Great Depression” was flashed as the front-page headline of the Independent, a British newspaper, joining the flurry of gloomy news about the economic slowdown in the United States. The tumultuous economic growth in Asia has taken its toll on the U.S. economy. Sadly, Asia’s continued stellar economic performance in terms of job opportunities, innovation, and positive change has invariably added more doom and gloom to the dismal U.S. downturn.
It seems lately the Americans awake to one bad news story after another. Food and healthcare costs continue to escalate; housing prices and the Dow Jones Industrial Average drop, showing no sign of recovery; bank loans and credit facilities become tighter and more stringent; fear of unemployment sets in with current salaries just waiting to be axed; and year-end bonuses might soon be unheard of. And the list goes on. In short, the U.S. economy is heading into the doldrums with little prospect of any help anticipated at the end of the dreary road. Worst of all, this depressing situation could continue for the next two to three years.
The biggest area that has been hit is housing, which is everyone’s biggest asset. And Americans are no exception. In fact, the U.S. housing market has been deteriorating for the past few years, and no one paid attention. Then the prices of houses continued to plunge at a fast pace, as more and more houses become empty and unsold, with foreclosures by banks at an all-time high.
As an illustration, the two largest mortgage companies, Fannie Mae and Freddie Mac, together hold about half of the country’s $12 trillion in mortgage debts.14 With continuous tightening of credit by the international banks in the United States, this means that there will be few creditworthy buyers who can qualify for new homes, resulting in a slowdown in the construction industry. Other sectors such as manufacturing and retailing are also badly hit.
Inevitably, this downward trend with fears of unemployment looming in the near future has affected the already shrinking U.S. consumer spending, particularly in cars and luxury goods. Retail sales are sliding with lower and lower imports forecasted. However, at the other end of the scale, it is all bushy-tailed and bright-eyed for China. Fueled by its growing huge domestic demand, China’s retail spending is on the upward trend for both locally produced products and imported ones.
A growing concern is that Chinese imports in the United States will take a hit on consumer spending. Although these Chinese imports offer cheaper alternatives with wider varieties to Americans who are tightening their belts, it might be a matter of time before the United States cuts back on its imports, including cheaper Chinese imports. When demand is low triggered by austerity drives to cut back on spending, even cheap Chinese goods might no longer be affordable. The World Bank estimates that if U.S. consumption of Chinese goods falls by the equivalent of 1 percent of GDP, this could knock 0.2 percent to 0.5 percentage points off China’s GDP growth.15
However, with fears of a global recession imminent resulting from the backlash of the extreme recession in the United States, the rest of the world will not be spared. Economic growth in Asia will likely slow over the coming year. As the saying goes, “When the U.S. sneezes, the rest of the world catches a cold.” At the time of this writing, it seems like it will be a bad cold, one that might take longer than usual to recover from.