Originally published in the Financial Times
For most Americans, the main lesson of last month’s jobs report was an unchanged unemployment rate of 9.6 per cent, another ugly statistic in a steady procession of bad economic news. But of equal importance was the better news that 159,000 new private sector jobs were added, making October the second strongest month of the year.
The US economy might be struggling but it is not quite the basket case that dominates the public consciousness. And neither are its prospects – at least in the medium term – quite as gloomy as the daily drumbeat of apocalyptic forecasts would suggest.
Like a fully loaded jumbo jet lumbering down the runway, the US economy is pulling hard to gain enough speed to become airborne. And like the jet that always manages to fly, its nose has finally begun to point upward.
After a desultory spring, the ticker tape of economic statistics has started to reveal modest encouragement. Signposts ranging from leading indicators to construction spending are flashing modestly better news, with many announcements beating economists’ consensus expectations.
Even the beleaguered automobile industry is showing signs of life. Sales in October crossed the 12m rate (on the way up) for the first time in two years (except for August 2009, which benefited from a cash-for-clunkers car scrappage scheme). Ford is on track to book record profits and GM – bankrupt 16 months ago – is almost as certain to have a successful initial public offering.
All told, the “green shoots” that Ben Bernanke, chairman of the US Federal Reserve, famously identified back in March 2009, may finally be appearing. If nothing else, the likelihood of a double dip recession – a distinct possibility not so long ago – now seems minimal. Here is, perhaps, a bolder prediction: the US is not going to drift along in a Japanese-style funk.
For all its difficulties, the US economy still has more going for it than any of its developed competitors – like its productivity, a sine qua non for prosperity. Unusually, productivity in the US continued to grow straight through the recession, as businesses kept a tight rein on costs. While that helped drive the US’s stubborn unemployment, equally important, it spurred strong corporate profits, added materially to its competitiveness and set the stage for future hiring (which may now be occurring).
That growth in productivity reflects one of the US’s great strengths: its flexible labour markets. Other strong points include its leadership in high value added sectors like technology, financial services and entertainment. For example, Facebook, the globally dominant social network, watches over its 550m global members from a set of modest offices on a commercial street in Silicon Valley.
More cyclical factors help, too. While every headline about the fall of the dollar implies bad news for the US, in fact in a non-inflationary economy like America’s, a lower exchange rate is unambiguously positive, bringing a push to exports that has given hope to the country’s battered manufacturing sector.
While chief executives continue to complain about the administration’s allegedly heavy hand, none of this promise appears to have been lost on the surging stock market, which is up 81 per cent since its March 2009 bottom. If the US in the care of Barack Obama were really such a terrible place to do business, why would investors be bidding up the prices of all those shares?
To be sure, the recovery continues to be weak. Gross domestic product is moving upward only by inches. As economist Carmen Reinhart and others have noted, recovery from a recession of financial origins is generally slower, like the difference between recuperating from open heart surgery versus having a broken bone set.
That is why the expansionary policies that have been administered were essential. While only Congress could have settled on the hodge-podge of fiscal stimulus measures now in place, there is no doubt that without them, recovery would have been still slower and unemployment still higher.
More recently, the Federal Reserve’s decision to embark on a second tranche of quantitative easing, known as QE2, was similarly well-founded.
In just the last few days, a number of blue-chip corporations such as Coca-Cola have launched large bond offerings to take advantage of low rates. That augurs well for capital investment, which was already on an upward trajectory in spite of business’s stated fears.
The US, of course, is hardly bereft of longer-term problems. The federal budget deficit is far worse than the “official” figure of $1,300bn suggests (largely because of $5,000bn of unfunded commitments for Social Security and Medicare.)
Thanks in part to global competition, wages for the average worker have not budged in real terms in a decade while income inequality has reached pandemic proportions.
Unfortunately, like Scarlett O’Hara, we’ve decided to worry about those problems tomorrow. In the meantime, a modicum of optimism may be in order.