However, one bright spot may come from overseas, where global economic growth is still forecasted at 4.8 percent in 2008. Although growth projections in the Euro area have also been marked down to 2.1 percent, emerging countries prospects are still solid: Brazil (4 percent growth), Russia (6.5 percent growth), India (8.4 percent growth), China (10 percent growth), and Mexico (3 percent growth).
The Dollar and the U.S. External Sector
The progressive depreciation of the U.S. dollar, together with continued economic growth overseas, provides excellent competitive conditions for U.S. companies to generate revenues from growing global markets. Moreover, a depreciated dollar, which makes the cost of imports higher, offers better conditions for U.S. companies competing with foreign firms in the domestic market. This has a positive impact on growth. But these advantages do not come without a cost: for example, the increasing price of necessary imports, like energy products. In November, wholesale energy prices rose 14.1 percent and overall wholesale prices increased by 3.2 percent, raising concerns about inflation and limiting the flexibility of the Federal Reserve to continue lowering interest rates.
Employment Outlook — Looking to the Future
With financial, automotive, real estate, construction, pharmaceutical, and possibly retail industries contracting, it is difficult to expect a positive employment outlook in 2008. In November, according to the Bureau of Labor Statistics, "Employment declined in several industries related to home building and financing. Construction employment declined by 24,000 with job losses occurring in residential building (7,000) and in residential specialty trade contractors (13,000). Within financial services, employment in credit intermediation (which includes mortgage lending and related activities) continued to contract by 13,000. Credit intermediation has lost 75,000 jobs since its peak in February. Real estate employment declined by 8,000 in November."
Recently released job figures for December 2007 offer further evidence of the fast-deteriorating employment situation. With employment adding just 18,000 jobs in December, the U.S. unemployment rate reached 5 percent, and the Hispanic unemployment rate shot up to 6.3 percent from 4.8 percent 12 months earlier.
Despite the economic environment, a recent survey that includes 14,000 employers (Manpower Employment Outlook Survey, released Dec. 11, 2007) indicates that a net increase in employment is still expected by employers. While 22 percent foresee an increase in hiring activity, only 12 percent expect a decline in staff during the first quarter of 2008.
In regard to small business, given their ongoing financial needs any deterioration in credit conditions would have a substantial impact on their operations. Either by withholding the approval of home equity loans, tightening lending criteria or increasing interest rates on loans.
The consensus view maintains that the United States will avoid a recession in 2008 but will confront an economic slowdown. Specific sectors and areas of the country could be severely impacted by the implosion of locally based industries. Export-oriented companies and sectors, however, should fare well. The weakness of balance sheets for both households and financial institutions represents a large risk for the U.S. economy in 2008. Nationwide deterioration of the job market, already underway, could trigger negative consequences in the financial sector.
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