US economy chugs along

Oct 18, 2012

Share with
friends:

Comments (0) Print this article

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.

Comments (0)

Share with
friends:

Related articles

Leave a comment

This will be the name displayed with your comment.

This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.

Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.

captcha To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.

By leaving a comment you accept our terms and conditions.


FREE - MoneyWeek's daily investment emailJohn Stepek

Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.

>