1. Investopedia's Forex Outlook For May 2012: Macroeconomic Highlights
  2. Investopedia's Forex Outlook For May 2012: U.S. Economy
  3. Investopedia's Forex Outlook For May 2012: European Economy
  4. Investopedia's Forex Outlook For May 2012: Japanese and British Economies
  5. Investopedia's Forex Outlook For May 2012: Swiss Economy
  6. Investopedia's Forex Outlook For May 2012: Calendar of Events

U.S. Shows Signs of Slow Growth
The U.S. economy has shown tangible signs of improvement over the past couple months. From labor market improvements to credit expansion, there is little question that the U.S. economy is on the road to recovery. In fact, Federal Reserve economists now believe that U.S. real GDP growth will grow at a pace of around 2.5% in 2012 and 3% in 2013.

Despite these positive signs, investors only have to look a year back to see how positive improvements can go awry. The U.S. was recovering modestly in 2011 before the Eurozone's sovereign debt crisis hit and sent the economy into double-dip territory. Many economists believe that this time is different, but there are several key risks that remain.

Three Key Drivers of U.S. Growth
The majority of the growth seen in the U.S. economy has come from three key cyclical sectors, including the automotive sector, residential construction and capital spending. A strong labor market has helped support demand for both automobiles and new housing, while strong corporate cash flow and very low interest rates have driven capital spending.

The burgeoning domestic oil and gas sector has also boosted both consumer and corporate confidence over the past few months. Development of these resources has led to both job creation and higher spending, while the prospect of lower future energy costs for domestic manufacturers has improved business confidence and encouraged capital spending.

SEE: The Ups And Downs Of Investing In Cyclical Stocks

Risks Remain, but No 2011 Deja Vu
The U.S. economy may be recovering, but Federal Reserve economists (of all people), remain very cautious. The burden of excess debt and lower real estate prices continue to force consumers to deleverage, while policy uncertainty has encouraged businesses to keep a high margin of safety in the form of cash reserves.

Luckily, it seems that the recovery today is a little more durable than the one in 2011. Consumer and corporate balance sheets are stronger and the recovery is no longer isolated to just certain sectors and industries. Problems in the eurozone also appear to be relatively contained, while energy prices may have already peaked, according to some analysts.

The Federal Reserve's Ongoing Volatility
Many economists believe that the U.S. economic recovery is strong enough to be self-sustaining at its current levels. But there is a lot of concern over the so-called "fiscal cliff" approaching at the end of 2012, when key government stimulus spending and tax relief efforts are set to expire and could possibly derail the economic recovery in 2013.

The uncertainty has led to some uncertainty regarding Federal Reserve policy, with a third round of quantitative easing still firmly on the table. Such policy actions could result in U.S. dollar depreciation, while the uncertainty surrounding the 2012 deadline could lead to a drag on the economic recovery, making it slower than it could be otherwise.

Investopedia's Forex Outlook For May 2012: European Economy

Related Articles
  1. Markets

    Investopedia's Forex Outlook For March 2012: U.S. Economy News

    U.S. Picks Up Steam, but not the DollarThe U.S. recovery appears to be picking up steam over the past month, with unemployment down, consumer confidence up and inflation falling. Many other indicators ...
  2. Markets

    Investopedia's September 2012 Forex Outlook - Macroeconomic Highlights

    U.S. Continues Its Slow, Jobless RecoveryThe U.S. economy showed signs of improvement during August, but the recovery is progressing more slowly than many economists and investors had hoped. ...
  3. Markets

    Investopedia Forex Outlook For April 2012 - Asia, U.K. And Switzerland

    Asian Markets Remain Volatile after China's Move Figure 5 - China GDP Growth Rate (%) Asian markets have been quite volatile over ...
  4. ETFs & Mutual Funds

    Will 2016 Bring a Bear Market?

    Timing the market is very difficult. Here are the current economic conditions that can hint at when a bear market will arrive.
  5. Trading

    Investopedia's Forex Outlook For April 2012

    Many risks threaten to derail the global economic recovery, including continued turmoil in Greece and higher oil prices.
  6. Trading

    Investopedia's Forex Outlook For November 2012

    Here's a look at current and upcoming events that may influence the FX markets.
  7. Markets

    Citigroup Cuts U.S. Growth Forecast

    After the recently published IMF forecast report, major banks like Citigroup are also cutting growth projections for the U.S. Here's why.
  8. Trading

    Investopedia's Forex Outlook For July 2012

    We look at the month ahead to see what major events will affect the forex market.
  9. Markets

    3 Cyclical Industries To Exploit in 2016

    Learn about the three industries at the down end of their business cycles, and discover how these industries may improve in years to come.
  10. Trading

    Investopedia's Forex Outlook For December 2012

    Here's a look at current and upcoming events that may influence the FX markets.
Trading Center