By: Dr. Lynn Reaser
The U.S. economy has been in an official recovery now for five years, although many might dispute that fact. Growth has been disappointing, averaging only 2.2% in terms of real gross domestic product (GDP). Recently, inspired by a second quarter jump following the harsh weather earlier in the year and a series of better jobs reports, expectations have improved. Most economists are now forecasting that the U.S. economy is finally moving onto a stronger growth track. The general view is that real GDP growth could average around 3.0% or slightly better in the second half of 2014 and into 2015.
Signs of slowing in Asia (including China and Japan), Europe, and Latin American could threaten that forecast. Conditions overseas can impact the U.S. economy through exports and/or stock prices. While exports account for only about 13.5% of U.S. GDP, they have contributed about one-third of the average growth in real GDP during the past five years of recovery. A sharp downturn could hurt the U.S. economy as it did in 2008-09, adversely affecting shipments, production, and jobs.
A substantial economic downturn abroad or even fear of such a slump could also pummel U.S. stock prices. Many large firms rely on international business for as much as 50% of their sales and earnings. That would, in turn, damage consumer and business spending.
A severe downturn overseas appears unlikely, but sluggish growth could prevent the sustained pickup in U.S. economic activity we all have longed to see.
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