How the rest of the second half of this year unfolds for the U.S. economy will depend largely on a combination of factors that include commodities, the dollar and government action (or inaction).
So far this year the economy has shown a remarkable degree of resilience despite of the various shocks (housing recession, credit tightening, commodities price surge, real wage contraction and rising unemployment) that have been battering consumers and businesses.
Support has come in the form of aggressive rate cuts (initiated back in September of last year), Fed support and bailouts of key market participants, tax rebates and a firm boost in exports, thanks to a significantly weaker dollar and robust demand from abroad.
As some of these factors begin to show signs of reversing (strengthening dollar, weakening commodities, tax rebate effect wearing out), and as new elements enter the equation (such as the slowing global expansion), with consumption faltering, economic expansion in the U.S. is set to weaken further in the third and especially fourth quarters. As housing prices continue their descent for the rest of the year, the repercussions on financials and the broader market are likely to continue, pushing expectations of an economic rebound for not before sometime late next year.
