The Hindu Business Line : US growth fears may be receding

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Mumbai Feb. 3 The whole world has been keenly watching economy-related developments in the US. Apprehensions of a slowdown in the world's largest economy amid growth versus inflation dilemma and concomitant impact on growth

prospects of individual countries have been doing the rounds for some time now.

For those worried over US growth prospects there may be good news.

The latest analysis suggests that the weakest areas of the US economy are looking better.

There are further indications that growth is picking up steam into 2007, Barclays Capital Research said in a recent report, adding that the two weakest sectors of the economy — housing and manufacturing — continue to give encouraging signals.

"Overall, we believe, the data will keep the Fed focused on upside inflation risks, rather than downside growth risks. Indeed, we believe, there is a reasonable risk that growth could surprise our relatively optimistic forecasts on the upside in the first half of 2007," the research report remarked.

Both production and survey evidence suggest that a period of slower manufacturing production has brought inventories to desired levels, and manufacturing production looks set to pick up notably in the first quarter of 2007.

Home sales stabilise

Homebuilders continue to signal that home sales have stabilised, while December data on starts and permits broadly show that the pace of contraction in housing construction is likely to ease in the coming months.

With manufacturers trying to slow the pace of inventory growth, the manufacturing sector has been weak in recent months.

But recent data suggest that production is picking up to a pace more in line with final demand.

Manufacturing production rose 0.7 per cent in December following a net contraction of 0.6 per cent over the previous two months. Early indications on January are also positive.

In housing, too, incoming data continue to suggest home sales have stabilised.

For the housing sector, which was the weakest area of the economy in the second half of 2006, demand indicators continue to improve.

Barclays report also pointed out that the weakest components of core inflation became less weak in December, just as the weakest areas of growth have firmed.

More importantly, lower energy prices suggest an upside potential to growth in the first half.

The report asserted that with reduced oil price forecast, the drag on consumer spending from high-energy prices will be less expected, and real income growth will be stronger.