The Biggest Risks to the U.S. Recovery

A growing number of economists believe that the U.S. economy has pulled free from the grip of the Great Recession, as another strong jobs report came out. They marry this with a string of good consumer confidence figures and an improvement in consumer borrowing recently released by the Federal Reserve.

The threats to the recovery usually listing include the ongoing trouble in housing, high gas prices, and a growth of the federal deficit. There are a several beyond that, according to S&P

In a new report entitled “The Top Risks To U.S. Credit And The Economy” the researchers claim that the two top risks to the recovery are “asset bubbles” and “natural catastrophes”. That assessment seems a bit naive as gas prices race toward $4 and WTI crude well above $100. Katrina was a drag on U.S. GDP, but how such an even can be put above high gas prices is incredible.

Next on the list, but considered less of a risk, is sharp residential losses, which is impossible to quarrel with. And, next is geopolitical and social unrest outside the U.S. There has already been a great deal of this in the last several months, particularly in Africa and the Middle East. A by-product of this unrest has been higher oil prices, so from an indicator standpoint, the assessment is fair.

The sovereign debt crisis and contagion from it are another S&P risk. With Greece settled, and some chance of a larger EU bailout fund, this risk seems to have receded. So has one more S&P risk — another U.S. recession.

The often overlooked risks that S&P is right to point out is a drop in China GDP growth to 5% which would hurt U.S. export dollars. The Chines government has repeatedly dropped forecasts, and its PMI has suffered — probably because of the recession in Europe.

Douglas A. McIntyre