Tuesday, May 18, 2010

The US Recovery, Tim Duy Edition

Here is a graph and a conclusion from a recent post by Tim Duy, an economist living in Oregon.

The European crisis, by keeping US interest rates in check and oil prices low, may do more to help the US recovery than hurt it. In the process, however, we would expect the flip side of the resulting capital inflows into the US to emerge - namely, a rising external imbalance. Arguably, this simply shifts the ultimate adjustment to sometime in the future. Again.
This is good news for the US (and Canada, since our economy lives and dies by the level of economic activity in the US).

Notice how he projects retail sales to grow faster than was the trend line back in 2007. That is typical. The economy seems to have a "built in" momentum and when a big recession knocks things down for a while, there is a reversion to the mean that closes the gap.

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