An economy is officially in recession when Gross Domestic Production of a country is negative for two quarters or more. The stress here is on negative growth. However, it is likely that an economy may not experience any negative growth but a prolonged growth of reduced or very low growth, though not negative. Because of this, we may still feel like recessionary conditions though not declared officially as yet.
Even though US economy has not officially been declared to be in recession, there are supposed to be a large number of recessionary conditions which may finally lead to a recession. These are a larger jump in unemployment numbers, inflationary conditions, credit crunch, housing meltdown, falling consumer sentiments, huge trade deficits, falling dollar values, weakening stocks etc. It is believed that US economy is facing all of these conditions at present.
Since US economy has extensive involvement with many major world economies, any recession here may in turn lead to global recession. That is why any slowing down of US economy immediately attracts worldwide attention.
US government does not admit that there is a recession as yet. US president has been sending positive statements and he has been denying that the US economy is in any danger of recessionary conditions.
US unemployment data has suggested an unemployment rate of 5% during December 2007 after jumping from 4.7%. 5% rate of unemployment should not be that alarming as this has hovered around 6% historically. But this is considered to be a big jump and there was immediate negative reaction in the stock markets.
Slowing growth in the US economy has been causing worries amongst many experts and institutions.
Other factors affecting the US economy at present are falling housing prices, tightening credit markets, tumbling value of US dollar, ballooning national credit or budgetary deficits, rising energy prices etc.
Business sentiment also appears to be on the decline. Many people do not seem to be having much faith in the US economy at present. International proxy wars have also done a great damage to the US economy.
US Government is considering many measures to combat recessionary conditions. These include tax packages, interest rate relief, liquidity injection, energy conservation and the like. However, it may not be easy to tackle wider issues like reduced business spending, spiraling energy prices, huge budgetary deficits etc.
US presidential elections are due in 2008. We may witness continuing uncertainty till these are over and there is a clear policy direction from the US Government.
One particular area to remain vigilant about is continuing downward pressure on housing prices. If this trend continues there may be further mortgage defaults. This may then spread over to other sectors like the consumer discretionary sector. That may add fuel to recessionary conditions.