The bear that left...

money.jpgAs I begun this blog a few months ago, one of the first things I reported was the effects of the two hurricanes Rita and Katrina on the American economy. I drew a pessimistic picture and proclaimed the coming of a bearish mood in the world economy mirrored in the post hurrican situation in America - See posts here and here. This topic was also discussed over at Mark Thoma's blog; see for example this post on the effects of hurricane Rita

However, the recent statistics on the American economy suggests that the pessimists were wrong to speak so gravely of the situation. The growth in the economy has been positive as the US economy grew by 3.8% in the third quarter of 2005 despite the hurricanes and that the suring oil prices have not hit consumer goods as hard as once feared.

"The economy appears to have weathered the impact of hurricanes Katrina and Rita, which shut down much of US oil drilling and refining capacity when they swept through the southern United States in late August and September.


The encouraging news is that we still don't have any evidence that higher energy prices are spilling over into other products, Nomura chief economist David Resler said." See article from

Also the consumer confidence which got a knock following the hurricanes is back on track which is a good sign particularly amidst the rising interest rates. "U.S. consumer spending turned higher in September and incomes grew briskly, suggesting the economy is holding up well to the double blows of hurricanes Katrina and Rita." See article from - The news is not all good though and the inflation is still well above what is considered a good figure; 

(from the same article) -

"Analysts said the inflation figure is in the upper end of the Federal Reserve's inflation comfort zone and suggested policy-makers will keep raising interest rates. The Fed is expected to boost interest rates by another quarter-point on Tuesday, the 12th increase of that size since June 2004, to combat inflation".

Giving the information above I should duly admit that I perhaps cried wolf earlier this year as things indeed looked gloomy with inflation creeping up and cosumer confidence in a downward trend - I even revitalised the dynamics of stagflation to describe the situation. That was certainly going too far but as I ponder the current situation in American and the world economy some important challenges still lie ahead; the housing/asset bouble and the account deficit with China along side the imbalances in the world economy which has been discussed widely on the economics blogs as of late. 

See discussions from Mark Thoma's blog on global imbalances, rebalancing those imbalances, and the global saving glut