Pablo Martinez Monsivais, FILE, Associated Press
The American Economy
The U.S. economy has, to date, barely avoided another economic downturn to follow the Great Recession of December 2007 – June 2009. While the American economy has generated just enough real (inflation adjusted) growth to avoid the actual recession label, a recession of confidence is clearly at play.
Businesses and consumers have largely stayed on the sidelines, watching a frustrating drama of childish behavior emerge from the nation's capital. Democrats have dug deep trenches to protect "vital" programs from exposure to slower spending growth in coming years, while Republicans decry attempts to raise taxes in any way, shape, or form.
Their combined contribution to rare successes in dealing with the nation's major economic and financial challenges has frustrated business leaders and consumers to no end, leading to widespread weakness in the economy … and some of the lowest ratings for an Administration and Congress on record. Too bad for the American people.
A pathetic 0.7% real annualized growth pace during 2011's first half should give way to a modestly stronger growth pace in the year's third and fourth quarters. Still, given the massive and historic amounts of fiscal and monetary stimulus at play, U.S. economic performance should be much more robust than it has been.
Recent near failures of the Administration and the Congress to address extending the debt ceiling clearly damaged the economy in July and August, leading to pathetic levels of job creation and the weakest consumer confidence level in 31 years. Whether the "super committee" of three senators and three house members from each party can agree to any serious longer-term deficit reduction is questionable.
The President suggested in his "jobs" speech on September 8 that he may have a stronger plan to address long-term trillion dollar annual budget deficits than has surfaced to date. We clearly hope so. No issue is of a greater threat to the American economy than the budget deficit cancer that has emerged over the past three years, with trillion dollar deficits for as far as the eye can see. As we have noted many times, the key to long-term deficit reduction is to slow the growth rate of entitlement spending in coming years.
The term spending cut has been, and remains, inaccurate. Only in the nation's capital can you commit to spend more money each year on a program … and call it a spending cut.
The past four months of dismal (if any) employment gains have trailed stronger gains in prior months. As noted before, emotional battles within the nation's capital have clearly damaged the American job creation machine.
The nation's unemployment rate has averaged 9.0% over the past three years, double the rate of five years ago. Most forecasts suggest the rate will remain at comparable levels well into 2012. One problem? The economy needs to add roughly 130,000 net new jobs monthly just to meet the needs of a rising population … just to meet the needs of a rising labor force. Even stronger job creation rates are needed to bring the unemployment rate lower.
Annualized consumer price gains of recent months have been at or near 3.6%, sharply exceeding the rise in wages. Even greater inflation pressures are found around the globe.
The Federal Reserve Chairman stills sees moderation in inflation about to unfold. Let's hope he's correct. A likely return of Libyan oil production during the next year, combined with global economic slowing, should lead oil prices modestly lower, helping to unwind inflation pressures of recent months.
The Federal Reserve