EXPLAINED | US Economy Likely Heading For A Recession This Year. These 5 Factors Explain Why – News18

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Last Updated: October 03, 2023, 16:53 IST

The flag of Texas flies outside the New York Stock Exchange in New York. (Credits: AP)

If the US government spending is affected due to the shutdown, experts predict that it would severely affect investments and consumption

The US economy is reeling under a series of factors- an ongoing auto strike, resumption of student loan repayments and a likely shutdown next month. To add to the woes, the soaring interest rates, the rising oil prices, and dwindling savings are suggesting that the world’s largest economy may be heading for a recession.

The inflation rates have lowered in the past few months and the employment rates have remained steady, but the economists still see a difficult road ahead for the US. Here are some of the reasons which suggest a gloomy outlook for the US economy:

Auto Strike

The auto strike by the biggest US automobile workers’ union is expanding with time as 7,000 more members joined the major strike against major automakers — Ford, GM and Chrysler producer Stellantis in a push for higher salaries and other improvements.

The latest walkouts leave a total of some 25,000 workers on strike in 21 states — or around 17 per cent of the United Auto Workers’ membership.

The strike has cost the US economy billions of dollars, denied the workers their wages and cut output at the car companies.

Fall in Manufacturing

The US manufacturing activity contracted in September, for 11 straight months, signalling ongoing challenges in the sector. Though the slump has been lower than analyst expectations, the manufacturing sector has continued its contraction trend but at a slower rate.

Student Bills

Millions of American students will start getting student-loan bills this month, after the three-and-a-half-year pandemic freeze expired, according to Bloomberg.

The borrowers are expected to make their first mandatory payments on their loans for the first time since former President Donald Trump first enacted the forbearance on payments and interest due to the Covid-19 pandemic. The resumption of payments is expected to reduce the annualized growth in the fourth quarter by another 0.2-0.3 percent.

Oil Price

Oil prices, which had fallen after a peak in 2022 early due to Russia’s war in Ukraine, have recently resumed a surge upward. The oil prices are rising again as the expectations of a supply deficit have outweighed concerns over low demand.

Brent crude oil which was at $80 per barrel earlier this year is now priced over $90 per barrel. Meanwhile, the average price of gasoline in the United States is above $3.80 a gallon.

Government Shutdown

The government expenditure in the US makes up around a quarter of the GDP of the US. If the spending is affected due to the shutdown in November, experts predict that it would severely affect investments and consumption affecting the economy as a whole.

Though the US economy has averted shutdown for 45 days for now, but in a worst-case scenario a full quarter shutdown could cause a 2 percentage point reduction in GDP growth, according to Moody’s predictions.

According to Bloomberg, each week of shutdown in the US would take about 0.2 percentage points off annualized GDP growth.

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