The US slowly emerges from the gloom of 2009

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The Independent Online

There was at least a little cheer over the last few days of what has been a largely forgettable year for the US economy as the country's jobless rate dropped to a 17-month low.

The number of first-time claimants of unemployment benefit unexpectedly fell by 22,000 to 432,000 in December, beating expectations and inching towards the psychologically important 400,000 mark, which economist believe is vital for the US economy to start creating jobs. Overall, the number of Americans claiming unemployment benefits fell by 57,000 to 4.98 million.

While coming nowhere close the growth expected from China, analysts do expect GDP to improve in 2010, after the economy hauled itself out of recession in the third quarter of last year. According to economists polled by Reuters, GDP will grow at an annual rate of 2.8 per cent in 2010. The Federal Reserve last week raised its outlook for GDP growth in 2010 to a range of between 2.5 per cent and 3.5 per cent.

In forecasts accompanying minutes from the Fed's policy meeting in early November, the central bank said that participants "anticipated that economic recovery would be gradual, with real gross domestic product (GDP) growing at a moderate pace and the unemployment rate declining slowly over the next few years". The range for 2010 growth was boosted slightly from a July forecast, which predicted an increase of between 2.1 per cent and 3.3 per cent.

The minutes also reveal that the Fed believes that unemployment will ease further in the coming months: "Participants generally anticipated that the unemployment rate would rise somewhat further during the final months of 2009 and then decline steadily over the next few years." The new forecast indicates that unemployment will drop to a range of 9.3 per cent to 9.7 per cent in 2010.

There has also been a raft of other data in recent weeks suggesting that the health of the US economy is gradually improving. Factory orders are expected to show a 0.5 per cent climb when November's numbers are released on Tuesday. October's figures, which were an improvement on most analysts' predictions, showed that inventories at US factories were up for the first time in more than 12 months. December car sales figures, which are also due on Tuesday, are also likely to be up on November's numbers.

With interest rates still at between zero and 0.25 per cent, and with little prospect of the Fed moving soon to hike rates, the US dollar is expected to continue to be among the laggards of the world's major currencies in 2010. Many US policymakers, including President Barack Obama, have called on China to allow the yuan to appreciate, which would in turn make US manufacturing more competitive. Beijing, however, has rejected the proposal by effectively pegging the yuan to the dollar and tracking it as it slips against other liquid currencies.

One area of the US economy that many hope will be repeated in 2010 is the remarkable performance of equity markets. Just a year after the collapse of Lehman Brothers and the battle on Capitol Hill over bailout money sent the indices spiralling, investors will remember 2009 as a fine vintage.

US stocks enjoyed their best 12 months for six years in 2009, with the S&P 500 gaining 65 per cent from 12-year lows in March. However, veteran investors will be well aware that despite the charge at the end of the decade, the last 10 years is unique. For the first time ever Wall Street closed at a lower point than it started 10 years earlier.

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