Here’s a little cold water on your first day back
by digby
Here’s some perspective on the economy before we get too excited:
The recovery under Barack Obama has been painfully slow by postwar standards, but it is fast compared to most of the rest of the world. There is also more to come in 2015. The US should enjoy the afternoon sunshine while it lasts.
Most of America’s good news is relative. The US is estimated to have grown last year by 2.6 per cent — roughly half a percentage point higher than the previous five years of recovery. This was weak compared to all previous US recoveries barring the first business cycle of the 21st century. But it looks stellar compared to the eurozone, which barely cleared 1 per cent. This coming year is likely to be very similar. The US will grow by around 3 per cent while the Europeans and Japan would be lucky to exceed 1 per cent.
Moreover, US unemployment is falling more rapidly than it has in years. With almost 3m jobs created, 2014 was the best year for the US labour market since 1999 — the height of Bill Clinton’s boom. At 5.8 per cent, the US jobless rate is almost half the rate of the eurozone. Most of America’s new jobs may be casualised and poorly paid. But they are jobs nonetheless. By contrast, countries such as Italy, France and Spain are unable to generate jobs of any description. A whole generation of Europeans is withering on the vine.
The next few months will crystallise the growing US-Europe divergence. At some point — probably in June — Janet Yellen’s Federal Reserve will begin the long-awaited turn in the US interest rate cycle. Should the US continue to create more than 250,000 jobs a month, that point could come sooner. The era of exceptionally easy money is at an end in the US. With luck, the European Central Bank will head in the opposite direction. Alas, the ECB is still debating how and on what scale to deploy the same kind of tools that have helped dig the US out of the post-2008 slump. In 2015 Europe will still be waiting for Godot while the US will be coping with a return to normality.
That is America’s good news. But it is of the type that used to qualify as bad. Nor will it persist for very long. The US recovery is already mature — there is no Clinton-style middle class boom around the corner. In spite of seven years of zero interest rates, the US has yet to clear the 3 per cent growth milestone. Free money does not go far nowadays. Long run trend growth has fallen from above 3 per cent to about 2 per cent. The US middle class has yet to regain its pre-2008 median income levels. It would take several years of 3 per cent growth for that to occur. The chances are this business cycle will come to an end in 2016 or 2017 without that having happened.
And then there’s this:
Economic recovery for whom? Listen to @ptcherneva discuss this chart on NPR’s @MorningEdition http://t.co/5jonfaNB9N pic.twitter.com/SWwppzxaXs
— Michael Stephens (@michlstephens) October 3, 2014
I’m not trying to be Ms Bringdown here. It’s good news that we’re doing better at long last. But there’s still work to do.
And beware the deficit vultures who are still circling. They do it in down times and often succeed in persuading people that “belt tightening” is good for what ails us . But it’s the good times that really get their juices flowing.
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