US economy most likely grew more in spring than what was estimated

The problems faced by the Chinese stock market have led to the fall of markets at many places including the US. The past few weeks have been a disappointment for the investors. It is now believed that if the problems on Chinese financial markets deepen, and the authorities are unable to control the situation, a full-blown financial and economic crash could follow in China. Despite that fact, the US economy gained more momentum in the spring than what was previously estimated by the government. The question now remains that how much can the Chinese markets weaken the economy of US in the coming months. The commerce department will put forward its estimate of the economy’s growth, as measured by the gross domestic product, for the April-June quarter. A month ago the government had calculated that the economy grew by 2.3 per cent annual rate last quarter. That figure declined to a mere 0.6 per cent for the January-March quarter. The reasons behind this were a severe winter and other temporary factors.

The economists surveyed by the data firm FactSet have predicted that the government will now estimate that the economy expanded at a stronger 3 per cent annual rate last quarter. About half of this increased growth will supposedly come from greater stockpiling of the supplies than the government had earlier estimated. One of the chief analysts at Moody’s Analytics, Mark Zandi, has predicted that after a quarter of working down unwanted inventories, the economy will accelerate to a 3.5 per cent annual rate in the October-December period. But this prediction is based on the expectation that the stock market’s slide will stabilize before it damages the consumer and business confidence. He said,” My forecast rests on the assumption that this is a garden variety market correction, with stock prices dropping by 10 per cent from their recent high. If we get a bigger decline of 20 per cent, then that will hurt consumption and housing, and we will not get the growth we are expecting.”

The US economy in the recent times has been in turmoil and many economists had though that signs of an improving US economy would lead to the Fed to begin raising its short-term rate, which is till now at a record low of near zero since 2008. If the present situation prevails, then the Feds are likely to increase this rate soon.