Moody’s Analytics Lowers US Growth Outlook
Monday, August 15, 2021 4:13 PM

Moody's Analytics trimmed its outlook for the US economic growth in the second half of 2011 in the wake of the debate over the country’s debt ceiling and its downgrade to AA+ from AAA by Standard & Poor's. It now expects the US real gross domestic products to increase at an annualized rate of nearly 2 percent in 2H of 2011 and just above 3 percent in 2012, compared with its estimate of 3.5 percent for the 2H of 2011 and through 2012, a month ago.

Moody’s Analytics, a sister company to credit-ratings company Moody's Investors Service, attributed the decline to a loss of business, investor and consumer confidence, noting the economy’s improving fundamentals such as the strengthening of business’s balance sheets and consumers’ strides in cutting household debt. Mark Zandi, chief economist at Moody's Analytics, says, "The US economy needs to grow 2.5 percent to 3 percent per year to add jobs fast enough to keep the unemployment rate stable. This will not happen soon. Employers will have added about 1.25 million jobs between the fourth quarters of 2010 and 2011, and 2 million more by the fourth quarter of 2012. By then, US employment will still total some 1 million less than expected.” He believes that the consumer confidence in the US is crippled and corporate is grappling with the influx of new regulations.

According to Moody's Analytics report, the first half of 2011 began on a positive note for the US with a strong job growth, and accelerating income and consumer spending. It states that a string of shocks including the devastating earthquake in Japan, crisis in Middle East and North African regions, and surging gasoline and food prices undermined business in the US. The debt crisis in the Europe and Washington’s failure to take a decision on debt ceiling further dented the investors' and public confidence. Zandi says, "The US economy suffered an extraordinary reversal of fortune."

Moody's Analytics states that the odds of a renewed recession over the next 1 year, now at 1 in 3, will increase if stock prices continue to decline. It maintains that the odds of a renewed recession rise with each 100-point drop in the Dow Jones Industrial Average. It states that although the country's economic recovery will continue the chances for economic growth and employment growth looks negative. It adds that the decision of Federal Reserve to maintain near-zero interest rates through the middle of 2013 will help to bring down long-term interest rates and boost investment. Zandi states that it now seems more likely than not that QE3 will begin in the next couple of months.