May 25, 2007 | posted by Michael Baxter in IABN |

What’s that coming over the hill? Is it the US economy?

Not so long ago, Alan Greenspan was talking about there being a one-in-three chance the US would hit recession later this year; the country’ sub-prime woes threatened to de-rail the US property market and send it freefalling into crisis; and the nation’s indigenous automobile industry, for so long the symbol of US strength, seemed to be tottering on the brink of collapse.

And yet this week a string of economic data would suggest that Uncle Sam has already shaken off the worst. Maybe the great US economic slowdown of 2007 is turning out to be little more than a gentle wheeze, which a soft blow on the puffer was easily able to fix.

First there’s the property market. April saw a 14 per cent rise in sales of new homes - the biggest jump in new home sales in 14 years. Sure, prices were down. According to the US Commerce Department, April saw an 11.1 per cent slump in the median house price, which dropped to $229,100 in the month, or £115,398.

Of course, an 11.1 per cent fall in prices is dramatic, but since the fall has encouraged buyers to move back in, there would appear to be reasonable evidence to suggest the market has bottomed out.

It makes you think, doesn’t it? Median price in the US is £115,000 or so. Wouldn’t the Brits be delighted to pay so little. No wonder some are still saying the UK property market still faces the bigger danger of a crash.

Turning our attention back to the US, yesterday also revealed good news on the job market and with durable goods (that’s products lasting more than three years). Excluding sales of transport goods, April saw the biggest rise in the sale of US-made durable goods in two years.

Meanwhile, the US job market also appears to be defying predictions of gloom. According to Labor Department figures, the average number of jobless claims in April was 302,750, the lowest level since February 2006.

But perhaps the real fillip came from the OECD. The economic group, which was originally set up to oversee the Marshall Plan, is predicting a sharp recovery in US growth for the second quarter of 2007. The OECD calculates that US GDP growth slowed to 1.3 per cent in the first quarter of this year, but predicts annualised growth of 2.5 per cent in quarter two, and for US growth to then stay at that level right through to the end of 2008.

The OECD said: “In the United States, the incoming data suggest that, following a weak first quarter, economic activity should gradually regain momentum. Sustained job and labour income growth should provide the basis for a progressive return to economic normality, while excess supply of housing is being gradually worked off.”
But it’s not all roses. The OECD did say that: “The slowdown of the US economy could turn out to be of a broader nature. It might involve a mild form of stagflation, with weaker trend productivity and output growth translating into more overheating. Weaker prospects for long-term growth would help to explain, for instance, why inflation has been more persistent than expected and why business investment faltered recently, despite ample profits and still favorable financial market conditions. ”
All in all then, it appears the US may well have shaken off the dangers of recession, and during the next year or so will see steady growth. But, inflation fears remain strong. It would appear the level of sustainable US growth is not what it used to be. Recession fears might be easing, but then so too are the prospects of spectacular growth, without inflation.