Is the US economy in a transitory "soft patch" or sliding toward a downturn?
The most recent economic data, showing a 2.8 percent annual growth rate in the second quarter, left economists debating whether the world's largest economy is simply taking a breather or running out of steam.
The gross domestic product report, revised downward from an earlier estimate of 3 percent growth, showed a considerable weakening from the 4.5 percent pace in the first quarter.
The surge in oil prices represented a big part of the slowdown, but economists said US consumers have turned cautious in the face of high energy prices, geopolitical uncertainty and other factors.
"The reality is that the economy is slowing down as high oil prices bump against the sudden loss of fiscal and monetary stimulus," said David Rosenberg, chief North American economist at Merrill Lynch.
To make matters worse, Rosenberg said that a big chunk of economic growth is going into inventories, because sales are soft, making the outlook even gloomier. Rosenberg sees the sluggish trend continuing.
"We stick to our three percent real GDP growth call for the third quarter -- the consensus is still very close to four percent -- as the inventory-sales mix in the second quarter was not the sort of configuration that typically leads to a meaningful acceleration in the pace of economic activity," he said.
Federal Reserve Chairman Alan Greenspan did not address the current economic picture in his speech Friday, but he and other members of the central bank have suggested the current weakness is transitory and that conditions are improving.
"My sense is that the recent softness in the economy ... is more fleeting than fixed," Atlanta Fed President Jack Guynn said recently. "I expect momentum to resume."
But some economists aren't so sure.
Morgan Stanley chief US economist Stephen Roach said the outlook is grim, with the Fed poised to keep raising interest rates while crude oil prices are more than 50 percent higher than they were a year ago.
"`Real' oil prices are now back to levels last seen in the late 1980s. If oil prices hold around present levels, this would qualify as a shock," Roach said.
"Shocks hurt most when they hit vulnerable economies," he added. "With current recoveries vulnerable in the US and in a US-centric global economy, the current oil shock could lead to recession in 2005."
Citibank's Steven Wieting said most economic forecasts over the past few months assumed oil prices around US$38 and would have to be revised lower if oil stays above that level.
He said the recent surge in prices left the economy statistically negative in the month of June.
"For both understandable and perhaps mysterious reasons, the US economy contracted in June, leaving activity levels in a 'statistical deficit' as the third quarter began," Wieting said.
"Accounting for the negative momentum created by the June declines, GDP in the current quarter will likely rise about 3.5 percent. A stronger fourth quarter is quite probable if the third quarter ends better than the second," he said.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source