Weak growth in consumer spending restraining the U.S. economic recovery

The United States is well on its way to recovery, but a slow rebound in consumer spending will prevent the U.S. economy from expanding at the strong pace that generally follows deep recessions, according to The Conference Board of Canada’s U.S. Outlook – Spring 2010.

"Weak consumer spending is keeping the U.S. economy from even stronger growth this year, as Americans continue to worry about jobs and the state of their retirement savings," said Kip Beckman, Principal Economist. "For the recovery to be sustainable, the economy must begin to create jobs and boost incomes. The positive job growth in March is definitely a step in the right direction."

A weak job market is expected to limit growth in consumer spending to a modest 1.8 per cent in 2010, well below the overall increase in real gross domestic product of 3.1 per cent. The U.S. unemployment rate is expected to rise above 10 per cent in the next few months as individuals sense better job prospects and attempt to re-enter the workforce. The unemployment rate is not expected to return to pre-recession levels until at least the middle of the decade.

Growth in real exports will offset, to a certain extent, the relatively weak rebound in household spending. Exports are expected to increase by close to nine per cent this year due to the depreciation of the U.S. dollar over the past few years and stronger global economic growth. The short-term outlook for the U.S. dollar is uncertain because of the recent downward pressure on the euro, a result of the economic crisis in Greece.

Business investment spending will rebound in 2010. The conditions that led to a plunge in business investment during the recession have steadily turned around. The reduction in inventories last year was so dramatic that even a slight increase in demand should lead to a rise in spending as firms start to restock.