Is the United States economy slowing? Recent data suggest it is. Growth slowed in the first quarter of this year, admittedly from the torrid pace of last year, and recent oil price hikes seem to have taken a toll. Manufacturing activity also seems to have slowed, with the Institute of Supply Management index showing a fifth consecutive decline for April. The US Federal Reserve Board, in a statement yesterday announcing another quarter percentage hike in short- term rates, noted that ‘recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices’. Unlike a previous occasion last year, when the economy hit a soft patch, central bank officials did not say this time that they thought the slowdown was ‘transitory’. They took pains, however, to indicate they were more concerned about inflation than they were about slow growth. Is the US in for a period of ‘stagflation’ then, that unlikely combination of stagnant growth plus inflation which plagued the 1970s.
Some pessimists fear so, but it is unlikely – unless, of course, oil prices continue to rise. Barring that not altogether unlikely possibility, the current slowdown of the US economy is likely to be temporary. In fact, it is not even surprising, given the fact that the economy has been growing at such a heady pace for close to two years now. Manufacturing, for instance, has been growing for 23 consecutive months, the longest run of continuous growth for the sector in 16 years. The current lull is in all likelihood similar to the soft patch the economy hit last summer, a temporary pull-back in the rate of growth. With short-term rates still at an unusually accommodative 3 per cent, the Fed’s slow but steady rate increases are unlikely to curb growth.
All this is good news for Singapore and the region. With Europe moribund and Japan sputtering, the US, remains the chief engine of global growth, together with China. Though Singapore’s unemployment rate rose to 3.9 per cent in March, prospects for growth this year remain relatively healthy. The Government forecasts growth of between 3 and 5 per cent this year, down from last year’s 8.4 per cent, but still a respectable rate. It should give the country sufficient breathing room to continue making the structural changes necessary to meet new challenges.