The economy’s prospects
Waiting for the earth to open
The usual accelerators of recession are absent—but so are the brakes
Aug 27th 2011 | WASHINGTON, DC | from the Economist print edition
HOURS after an earthquake struck America’s east coast on August 23rd, office workers were still milling around the streets of Washington, DC and New York (above), nervously waiting for aftershocks. A similar watch over the economy is now under way. The earthquake that ripped through the American economy from 2007 to 2009 is still generating tremors. The latest may be the strongest yet. Since late July stock markets in America and round the world have nosedived, fearful that America is falling back into recession and that Europe’s debt crisis will drag down its banks.
America’s economy is certainly weak. It grew at an annualised rate of just 0.4% in the first quarter and 1.3% in the second. Future revisions may push both numbers into negative territory: the economy would have already double-dipped.
Much of that weakness may be traced to the run-up in oil prices that followed the Libyan uprising and to the Japanese earthquake and tsunami, which disrupted supply chains. As both shocks receded, economic activity turned up. An index of economic reports compiled by the Federal Reserve Bank of Chicago suggests that the economy grew in July (see chart 1), though it may since have flagged again.