Tea Leaf: U.S. economy is puttering along at about 35 mph

Published: Wednesday, Nov. 3 2010 10:07 a.m. MDT

Women carry their shopping bags on Fifth Avenue in New York last month. The economy grew at a slightly faster pace over the summer as Americans spent a little more freely.

Associated Press

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The American economy is a modified "hot rod" featuring two separate gas pedals, with each pedal pushed fully to the floor. Despite this fact, the American economy is lumbering down the track at a less-than-blistering 35 mph pace.

Someone please release the brake.

Actually, this moving contraption has a variety of hand brakes … all engaged.

One was expected to be released Tuesday, with the uncertainty brake regarding election results pulled. A second brake release could also occur, as uncertainty about what the Federal Reserve will do next as far as additional monetary stimulus is also pulled.

Whether either of these release moves will enhance U.S. economic "miles per hour" remains to be seen. In addition, Friday's release of the latest monthly employment data will give us a better picture of where we are on "the road to recovery."

As noted before, when one considers the massive amount of fiscal stimulus (government spending and breathtaking budget deficits) and monetary stimulus (both short- and long-term interest rates at or near historic lows, with unprecedented money creation), the U.S. economy should be cruising down the road.

Instead, it is well under the speed limit.

Nothing to write home about

The U.S. economy grew at a miserly 2 percent real (after inflation) annual rate during 2010's third quarter, largely matching economists' forecasts. Such growth represented the fifth consecutive quarter of U.S. economic growth since the Great Recession officially ended in June 2009.

By comparison, U.S. growth over the past 30 years has averaged 3.6 percent annually after inflation, or twice the pace of the past two quarters.

In my view, weaker U.S. economic growth in recent quarters has resulted from, first, the fact that millions of American business owners and consumers simply lost faith in the "bigger government is better" view of the current administration and congressional leadership; and, second, that recovery from the ravages of the Great Recession, the most painful economic and financial hit to our economy and our lives collectively in 80 years, does not happen quickly.

The best news in the third quarter report was that consumer spending rose at a 2.6 percent annual rate, the strongest performance in four years.

The worst news was that most of the third quarter growth resulted from higher levels of inventory accumulation (think of merchandise stacking up on store shelves and in warehouses that will eventually need to be sold) … not exactly a good omen for manufacturing output in coming quarters.

A steady clip

Still, prior discussions of numerous economic naysayers about the likelihood of a double-dip recession have slowed. Former forecasts of some economists of a rapid recovery from the Great Recession have also fallen by the wayside.

Our long-term view of an economy struggling along at a modest 2 percent to 3 percent real annual pace remains on track.

Maybe, just maybe, the idea of less onerous, less overbearing government in coming quarters will help the economy pick up speed. Maybe we are back on the right track.

Jeff Thredgold is chief economist for Zions Bank and founder of Thredgold Economic Associates. He is a certified speaking professional and author.

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