Economics
America's economy
Waiting for the "kick"
Dec 20th 2011, 15:39 by R.A. | WASHINGTON
THE fourth quarter has been a surprisingly good one for the American economy, but many observers have been wondering whether America can keep up the pace (now estimated to be a roughly 3.5% to 4.0% annual rate of growth for the last three months of 2011) in what is likely to be a difficult 2012 for the global economy. A rebalancing America will face an obstacle to continued export growth in the form of a weakening European economy and growth hiccups across emerging markets (though if a slowdown across the emerging world coincides with rebalancing there, then import demand—including demand for American goods—might slip less than exports).
The good news for America is that several of the persistent domestic constraints on recovery appear to be eroding. Economists have been watching the housing sector for months now. Construction has been very depressed for several years: too depressed given continued growth in the population. A rise in prices, rents, and construction therefore seems likely, which could help fuel a rebound. Higher home prices should aid troubled borrowers and banks while also boosting spending through the wealth effect. And a rise in construction would buoy struggling labour markets, adding to the economy's spending power. Slowly but surely, a turnaround is emerging. Multi-family housing construction in particular is showing signs of strength, according to the latest housing start data. If this trend continues, residential investment may add to growth in 2012 in a meaningful way, rather than continue to act as a drag on activity.
There are also some signs of light in state employment data. Over the past year, most states enjoyed payroll growth, and a number of key states, including California, Florida and Texas, as well as (somewhat strikingly) Midwestern states like Ohio and Michigan. Employment growth across the country has been driven by increases in private payrolls sufficient to offset steady declines in government labour. As the economy recovers, however, states are finding that tax revenues are recovering, and the cycle of intense budget-cutting is reaching an end. Government payrolls in California fell, year-on-year, for 31 consecutive months from 2009 to 2011. In September, October, and November, however, government employment in California rose slightly on a year-over-year basis. Many other states are still shedding government jobs, but the pace of decline has fallen markedly. The removal of the drag from state and local government cuts will be another force for improvement in growth and in labour markets.
Events abroad or dysfunctional government might yet derail this recovery, but America's economy seems to be chugging along at a pace good enough to begin kicking off some positive feedback loops. Hopefully these signs of light won't prove abortive.
In this blog, our correspondents consider the fluctuations in the world economy and the policies intended to produce more booms than busts. Adam Smith argued that in a free exchange both parties benefit, and this blog's aim is to encourage a free exchange of views on economic matters.
Advertisement
Money talks audio
- Analects | China
- Americas view | The Americas
- Babbage | Science and technology
- Bagehot's notebook | British politics
- Banyan | Asia
- Baobab | Africa
- Blighty | Britain
- Buttonwood's notebook | Financial markets
- Charlemagne's notebook | European politics
- Clausewitz | Defence, security and diplomacy
- Democracy in America | American politics
- Eastern approaches | Ex-communist Europe
- Elysée | France’s presidential election
- Free exchange | Economics
- Game theory | Sports
- Graphic detail | Charts, maps and infographics
- Gulliver | Business travel
- Johnson | Language
- Leviathan | Public policy
- Lexington's notebook | American politics
- Newsbook | News analysis
- Prospero | Books, arts and culture
- Schumpeter | Business and management
Most commented
- The euro crisis: The Greek run
- Foreigners in China: Barbarians at the gate, again
- Brazil’s economy: A bull diminished
- Russia and NATO: Rethink the reset
- Gay marriage: North Carolina begs the question too
- Nationalism online: Backfired
- Turkey’s cultural ambitions: Of marbles and men
- Greece and the euro: Exodus, chapter 1
- Renouncing citizenship: Did Eduardo Saverin do anything wrong?
- Personality and polarisation: The big sort
Over the past five days
Most recommended
- The euro crisis: The Greek run
- Greek politics: Slouching towards the drachma
- Renouncing citizenship: Did Eduardo Saverin do anything wrong?
- Brazil’s economy: A bull diminished
- Foreigners in China: Barbarians at the gate, again
- The euro crisis: Going, going, gone?
- Rival versions of capitalism: The endangered public company
- Jacob Zuma: Portrait of a president
- Bo Xilai v Chen Guangcheng: Who is the mightier?
- Facebook goes public: Not top of the pops
Over the past seven days
Advertisement
Readers' comments
The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.
Sort:
Things are looking to be improving in the US and this good for the whole world mainly in times EU crises as well as slowing growth in emerging markets. This is a positive indication for recovery and suspicions of double dip may now arrested but still there is need to be cautious as any wrong decision by govt will have negative impact. The US needs to realize that that it cannot recover only by helping its domestic industries but it must have to ensure its policies are not hostile to other countries. There are moves in the US to limit scope BPO but this will not have negative impacts on those off shore destinations but the US as well
It's quite unfortunate that Republicans who you will credit with more efficient post-WW2 economic management seem to back fire now that they have shattered the iron curtain.
Investors seemed to be safe then with Republicans during the Cold War but seem to be averse to their take post-. Unfortunately, they have failed to significantly push to the centre.
In any case, the credit for this turn around goes to the Fed, the Consumer and Business, in that order... Some crumbs to Obama for making the world safer to do business...
OH NO.
Good news on the economy. The Republicans must be absolutely mortified and planning furiously a strategy to derail this growth - Obama might be reelected since he might get credit for it.
We intelligent Americans realize that what is good for the Republican party election chances rarely is good for America or Americans.
Higher home prices should aid troubled borrowers and banks while also boosting spending through the wealth effect.
A whopping 46% of homes sold in November were either short sales or REOs -- as homes foreclosed on and repossessed by lenders are called, according to a survey by Campbell/Inside Mortgage Finance released Tuesday.
http://money.cnn.com/2011/12/21/real_estate/foreclosure_sales/index.htm
Rah! Rah! Rah!
(waving pom poms)
Regards
"Higher home prices should aid troubled borrowers and banks while also boosting spending through the wealth effect."
Let's not get ahead of ourselves. Besides, no one ought to wish for a return of the gross distortions that a homeowners' wealth effect inflicted upon the economy. A house is a place to live. It is neither a current piggy bank, nor a pot of gold at the end of the rainbow. We cannot all get rich by selling our houses to each other.
The challenge remains that payroll growth is below the level to keep unemployment steady - add to that mix fiscal consolidation in US (see chart) with stagnant wage growth. All of which means that that there is no catalyst for sustained consumer spending in 2012.
http://www.adsanalytics.com/dashboard/docs/dashboard.php?treepage=tree_d...
ADS Analytics
One thing I have learned recently is that velocity, the V in MV=QP, lags behind changes in M quite a bit. That partly explains the long lags between policy and effect on the economy.
The Fed's monetary pumping hasn't worked for the past 4 years because people were stuck in deflationary expectations. In other words, V was depressed and keeping a rising M from having any effect. It appears that expectations have finally changed and V is running with M instead of against it. That suggests a good year ahead as prices rise.
At the same time, Congress loaded most of the stimuli to be spent in 2012. So this should be a good year for the stock market. But get out before the election because 2013 will be hell and the Fed tries to rein in price inflation.
Obama will win re-election, but we need to make sure Republicans take Congress so that we will enjoy another year of blessed gridlock. People who love liberty love gridlock because we can expect no more good to come out of Congress than we can expect something good to come out of the south end of a north bound mule.
If you look behind the jobless claims, unemployment and other headline numbers, you will find that over 20 percent of metropolitan areas in the United States still have U3 unemployment rates in excess of 10 percent. While this is down marginally from peaks in 2009 - 2010, employment and by extension, economic health, is far from robust as shown here:
http://viableopposition.blogspot.com/2011/11/life-in-metropolitan-americ...
As Ohio goes, so goes the nation.
In November Ohio gained 7,000 month over month,
and 9,000 jobs year over year.
The unemployment rate fell from 9.59% November 2010
to 8.51% November 2011.
Just like the mational report, the unemployment rate fell
because 30,000 people quit looking for work in November 2011 vs
October 2011.
69,000 people quit looking for work in November 2011 vs. November 2010.
http://jfs.ohio.gov/releases/unemp/201112/doc.asp
Multi-family housing construction in particular is showing signs of strength.
Yes, the American dream.
Living in a multi-family building.
Would the increase be due to increased gov't housing due to closing or tearing down the old projects for new projects?
Or because 2 family homes in the inner-cities are being torn down?
http://www.cbsnews.com/8301-18560_162-57344513/there-goes-the-neighborhood/
(The picture is of a 2 family home. The video link on the page shows many 2 family homes forclosed and ready for demolition.)
Regards