U.S. economy will recover in second half of 2009
Lower oil prices will be a stimulus to the U.S. economy
By Jim Carbone -- Purchasing, 11/6/2008 3:29:00 PM
The U.S. economy suffered negative growth in the third quarter and won’t recover until the second half of next year because cutbacks in consumer spending and a declining housing market, according to the vice president and regional director of the Federal Reserve Bank in Chicago.
Addressing the annual meeting of the National Electronics Distributors Association this week, William Testa said cutbacks in consumer spending and the credit crunch are causing negative economic growth. He said consumers are cutting back on their spending because of the financial crisis, adding that consumer household spending represents about 70% of economic activity on in the U.S.
“Consumers have looked at their 401Ks and their house values and feel they need to adjust their portfolios and not spend as much,” said Testa. He added consumers are worried about their incomes and about keeping their jobs which has led to the “retrenchment in spending.”
Testa said the declining housing market is also having a negative impact on the economy. “It has taken off a point of our growth which is usually 2.5-3% per year,” he said.
While the economy is slumping, there is a bright spot which will help the economy in the coming months: lower oil prices. “Oil prices have declined to $65 a barrel on the spot market,” he says. As a result gasoline prices have dropped. “That’s a stimulus. It will put $100 billion into our economy per quarter, because consumers won’t have to spend as much to buy gas and can use the cash for other purchases, said Testa.
Many electronics distributors attending the conference said they were just starting to feel the impact of the financial crisis and the credit crunch. Some were forecasting slow to flat growth in 2009, but acknowledged that negative revenue growth was possible. Some say business would get worse before it gets better.
“There is a lot of uncertainty,” says Mark Larson, president of Digi-Key in Thief River Falls, Minn. “There is a potential for a downturn, but I believe we will outperform the market.”
He says Digi-key will likely end 2008 with a 7.5% increase in revenue, but next year sales could be flat. “My best guess is it will be pretty unspectacular,” he says.
Also see: The financial bailout is just a first step for the economy
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