A Look At The Chances Of Sustained Economic Prosperity

By Lewis Humphries | May 10, 2012 AAA
A Look At The Chances Of Sustained Economic Prosperity

The U.S. is awash with predictions of steady and sustained economic growth for 2012, and the first financial quarter has done little to dampen this enthusiasm. As the national employment rate in the U.S. dropped to just 8.2% in March of this year, the number of claims for first-time unemployment benefits also dipped to a four-year low. Given this, and the reported expansion in the nation's manufacturing output, it is clear to see why there is renewed optimism among consumers and businesses nationwide. Could the path towards economic redemption really be this straightforward, or are there further challenges that may thwart sustained economic growth?

Signs of Economic Growth or a False Dawn?
Despite such forward thinking optimism, the U.S. has found itself in a similar position at the turn of both 2010 and 2011. Just last year, the economy was creating jobs at a rate of more than 200,000 per month during the first financial quarter. This job-creation rate was before international disruption and the development of the eurozone crisis had a damaging effect on global trade and manufacturing. Even stronger growth was recorded during the first quarter of 2010, although this was largely as a result of the nation's emergence from a deep recession rather than an omen for sustained and consistent economic growth.

Despite these worrying omens, there are genuine grounds to believe that this year's steady recovery is on course to last. This week, it was reported that the manufacturing sector in the U.S. was performing beyond expectations, with the Institute for Supply Management's index of manufacturing activity having climbed from 53.4 to 54.8 during March. This is reflective of a new found stability in the global manufacturing chain, as China's own economic crisis begins to ease and offers a further boost to the levels of confidence within the Asia Pacific region and among troubled eurozone countries.

Consumer Confidence
It is clear that the global economy has a significant bearing on the level of growth experienced by individual nations, thanks largely to the trade and manufacturing links that bind countries together. It also has a direct impact on consumer confidence in every single country. Developments such as the recent rise in gas prices can hinder personal spending and create a negative perception of the economy. The rising cost of fuel clearly had an effect on U.S. consumer confidence during April, and although the Discover U.S. Spending Monitor remained at its highest level since October 2007, its growth slowed significantly when compared with previous months.

While global economic issues always pose a significant threat to the growth of individual countries, the continued rise of consumer spending in the U.S. cannot be ignored. Such soaring confidence was also evident in the nation's retail sector, which experienced its most significant level of growth this year during February as its total sales climbed by 1.1%. With small business confidence also experiencing growth for the sixth month in a row since the final financial quarter of 2011, there is clearly a strong belief that the recent economic recovery can be sustained and built upon.

The Burden of Consumer Debt
Of course, the levels of consumer confidence in the U.S. cannot be discussed without considering the impact that debt has on the nation's growth. There is a clear link between a consumer's earning capacity, his or her monthly debt liabilities and the level of disposable income that he or she possesses. The aftermath of the 2008 recession left a society burdened with high unemployment and unmanageable repayment schedules. This led to consumer debt reaching a peak of $12,400 billion during October 2008, which minimized disposable income and had a highly detrimental effect on any hopes of reviving the economy.

With this in mind, a recent report by credit company Equifax offers further proof of the nation's economic growth. Consumer debt tumbled to just $10,900 billion during the first quarter of 2012, which is a drop of more than 11% from the dark days of the global recession. Not only this, but the report also suggests that 72% of total delinquencies are associated with loans taken out between 2005 and 2007, and this raises hope that consumers are benefiting from higher levels of disposable income and also learning how to invest their money in a more responsible manner.

The Bottom Line
With rising unemployment prominent in the eurozone and the U.K. entering into a period of double-dip recession, sustained economic growth in the U.S. can never be taken for granted. These global threats aside, the signs for economic growth remain strong and highlight significant improvements in the levels of job creation, consumer confidence and debt management throughout the U.S. In addition to this, there is also reason to believe that citizens are adopting a more responsible attitude towards spending, and this can only maximize the impact that disposable income has driving the economy forward in 2012.

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