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Early Signs Show US Economic Recovery is Slowing


The Citi Economy Surprise index for the US continue to be in decline

Posted: October 13, 2021 at 4:20 pm   /   by   /   comments (0)

The world economy is beginning to recover from the coronavirus pandemic, but expected growth forecasts and early warning signs are becoming more and more prominent.

On Tuesday, the International Monetary Fund downgraded the United States’s expected growth forecast by a whole percentage point to 6%, the biggest decrease for any G7 economy.

One of the biggest issues cited by the IMF for the downgrade was supply chain issues. This issue is impacting the entire world, with disruptions already noticeable in the United Kingdom.

A senior White House official told Reuters yesterday that “there will be things that people can’t get” during the holiday shopping season.

Economic forecasters also point to lower consumption levels fueled by inflation and stagnant wages as a factor harming the country’s economic recovery.

More than a lack of variety during the holiday season, global supply chain issues, stagnant wages, and high inflation will severely hurt the 40 million Americans living below the poverty line.

Shipping and Energy

One of the most worrisome risks to global and local economies is rising energy prices. European gas prices have spiked so high recently that some energy providers are switching back to coal, an energy source that is set to be phased out in many countries.

The rising cost of providing energy to businesses and homes is also a concern in the United States. Energy prices are up across the board in the US, from gas for your car to heating oil and natural gas to heating homes and run factories.

Andreas Steno Larsen, an analyst at Helsinki-based Nordea Bank ABP, told The Wall Street Journal that the rising energy prices in the US were behind his decision to cut the country’s economic growth rate from 3.5% to 1.5%. 

While some of the US economic recovery woes are being blamed on low levels of consumption, the energy market faces a different problem. More people are out and about, moving and using more fuel and gas.

The coronavirus pandemic caused supply chain disruptions and reduced output as much of the world stayed at home or in their own country.

In addition to the coronavirus pandemic, a variety of environmental factors and extreme weather events have thrown a wrench in energy production.

The United Kingdom is the G7 country that has seen the most significant energy crunch in recent months. Due to a combination of factors, including the coronavirus pandemic, Brexit, labor shortages, and other economic factors, Brits have seen empty gas stations and store shelves across the country.

Will the US Economic Recovery Slow Results to Shortages?

The White House has already warned Americans two months before Christmas that they might not be able to buy specific items during the holidays, but is there potential for significant shortages?

While some items might not be in stock, experts seem to think that most consumer goods will still be available, albeit at a higher price.

While this might not impact citizens who were able to enjoy comfortable work-from-home jobs during the pandemic, low-income Americans will face the brunt of consumer goods and energy price increases.

Even if your energy bill is relatively low, energy prices also impact the price of consumer goods and food. In European Union, economic ministers and experts are already warning that increased energy prices will lead to higher prices at the supermarket.

            “For consumers, it [increasing energy prices] is like a tax,” said economist Kathy Bostjancic to The Wall Street Journal.

Combined with stagnant wages and a slow-down in job growth, rising energy prices and potential shortages also do not bode well for the Biden Administration.

With the President’s headline infrastructure bill stalled by conservative Democrats, Congress is trimming the spending bill as pressure mounts on the White House to get the legislation passed.

Bankers and Economists Caught Off-Guard

Economic crises and disruptions are often unexpected. The Great Recession in 2008 caught many investors, economists, and government officials entirely by surprise.

The downgrade from the IMF and other economic forecasts seems to point to a more cautious feeling amongst market makers after a staggering stock market recovery from the coronavirus-induced 2020 dip.

While the supply chain disruptions are unsurprising to some, US bank chiefs admit they were caught off-guard by the extent of the disruptions caused by supply chain issues.

However, the American bankers remain upbeat about the state of the American economy.

            “This will not be an issue next year at all,” said Jamie Dimon, JPMorgan Chase chief executive, this week. “This is the worst part of it, and the great market system will adjust for it.”

Dimon’s JPMorgan Chase had to pay a $13 billion fine for misleading investors in the years leading up to the 2008 financial crisis. In recent years, uncovered documents show JPMorgan knew that many of the loans they were giving out “were tainted with fraud.”

Yet, Dimon is still head of the biggest bank in the country, assuaging the downwardly mobile masses that the system will work itself out.

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