US economy chugs along
Oct 18, 2012
Encouraging US data has lifted investors’ spirits over the past few days. Consumer confidence, as tracked by the University of Michigan, climbed to a five-year high. Retail sales jumped by 1.1% in September. Sales of existing houses are at their strongest level for two years. Industrial production ticked up last month.
However, the New York Fed business survey covering the manufacturing sector suggested that it is still shrinking.
What the commentators said
When positive payroll figures came out earlier this month, former General Electric CEO Jack Welch implied that there was “a conspiracy to fiddle the numbers”, said Economist.com. In which case, it involves not only the administration, but “all the nation’s realtors… most consumers, etc etc”.
The truth is simply that the economy “is doing ok, but not brilliantly”. When it is “chugging along” like this there will be months when things look disappointing and periods when they are more positive. “Only when the economy is in boom or bust will all the data point consistently in one direction.”
This muddling through is set to continue, said Paul Dales of Capital Economics. “Things aren’t going to get worse, but they aren’t going to get much better.” The manufacturing sector will struggle as the global slowdown hampers exports. And it’s hard to see consumption suddenly taking off, given that job and income growth remain weak.
The big picture, as Carmen Reinhart and Kenneth Rogoff noted on Bloomberg.com, is that America is experiencing the typically choppy and protracted recovery that follows a systemic banking crisis. In the post-1945 recessions, which weren’t caused by financial crises, GDP usually bounced back quickly in a V-pattern.
After banking meltdowns the damage is greater, while the debt overhang from a credit bubble hampers growth for years. In the circumstances, concluded Reinhart and Rogoff, the American economy is actually doing about as well as can be expected.
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