Spare a bit of sympathy for the Federal Reserve Board’s monetary policy gurus. They have said they will begin to “taper” their purchases of bonds and mortgages when the unemployment rate falls to 6.5 percent. So July’s dip from 7.5 to 7.4 percent, the lowest rate since December 2008, should edge the Fed closer to reducing its purchase program. Alas, life is not so simple for the Fed. The unemployment rate dipped, but only 162,000 jobs were created in July, down from 188,000 in June, and below the approximate 200,000 average in the first half of the year. Worse: previously reported job creation figures for May and June were revised down by 26,000. What is a poor monetary policymaker to do?

In one sense these figures burnish the forecasting credentials of Fed chairman Ben Bernanke & Co. Earlier this week, before the latest jobs figures were announced, they concluded their latest meeting by announcing that the economy is no longer expanding at the “moderate” pace they previously thought. Instead, the pace of the recovery is merely “modest.” If you think that’s a distinction without a difference, think again. The “moderate” pace was fast enough to trigger a market sell-off in the belief that the Fed’s program of buying bonds and mortgages to keep interest rates down would be cut sharply and soon. The “modest” pace is slow enough to give bond prices a bit of support, and make market-watchers believe that the day on which the QE3 will head for the dry dock at top speed might not be around the corner after all, despite the fact that the Fed did not retreat from hints it might wind down its purchases next month. After all, Bernanke would like to get the process of tapering started before he turns his chair over to the man or woman President Obama chooses to head the Fed for the next four years.

Obsessive attention to the Fed and the monthly jobs report sometimes obscures rather than illuminates what is going on in the American economy. The facts are these. The economy is recovering from a recession that recent research shows was somewhat less severe than originally thought. That recovery has five characteristics.

· First, it has been going on long enough to have buried talk of a double dip. American Enterprise Institute economist John Makin, in a preview of his to-be-circulated outlook, notes, “The current, post-crisis recovery, though punctuated so far by two 'swoons,' a deflation scare in the summer of 2010 and a growth scare early in 2011, has passed its 48th month.”

· Second, inflation remains low, clocking in at a rate of around 1 percent, too low to create an immediate concern about the Fed’s money-printing operation.

· Third, it is proceeding at a slower pace than most people would like. In the first quarter of the year the economy grew at an annual rate of 1.1 percent (revised from an originally reported 1.8 percent), followed by a modest uptick to 1.7 percent in the second quarter. That increase is dismissed by some analysts because about about one-quarter of the growth in the second quarter was due to a build-up in inventories, something not likely to be repeated in the third and fourth quarters. But most agree that another “summer swoon” is highly unlikely.

· Fourth, the effects of the recovery are not reaching all income and age groups equally. The wealthy have done better than the middle class, creating a temptation for the president and his liberal followers -- they now prefer the label “progressives” -- to accelerate his demands for tax and spending programmes that redistribute income. He also wants to raise the minimum wage: Alan Krueger, who yesterday left his job as chairman of the president’s Council of Economic Advisers, has advised Obama that such a move will not have an adverse effect on jobs, a view hotly disputed by many equally respected economists.

· Fifth, while monetary policy has been loose, fiscal policy is tightening as a result of tax increases and cuts in government spending, the former imposed by the Democrats, the latter by Republicans in the House of Representatives. The president, who prefers campaigning to governing, is stumping the country in an effort to whip up support for a “grand bargain.” He is offering to simplify the corporate tax code by eliminating special deals for corporations, such as rapid write-off of capital expenditures, and to cut the tax rate on corporate earnings from 35 percent to 28 percent. Cheers from Republicans. But the net effect is to increase the total tax bill, cash which the president wants to spend on a new stimulus package. Boos from Republicans. They want new revenues used to cut the deficit and reduce taxes on individuals and small businesses, the latter taxed at personal rates rather than the corporate rate.

Looking ahead through the fog created by data revisions and the difficulty of predicting where four-party negotiations over taxes and spending between the president, his left, the Republican leadership in the House, and their right, will come out, some things seem relatively clear. The housing sector should continue to move ahead, despite a recent one-percentage point rise in mortgage-interest rates. As builders increase supply to eliminate inventory shortages that produce panic-buying, price increases might ease from the 6 percent rate they jumped in June, the largest increase since 2006. But there is little prospect of another housing bust.

Auto sales, now near post-crisis highs, should also continue to top 15 million vehicles per year. The existing fleet is still rather old, consumers have postponed replacing their cars until they could be certain that they would not join the ranks of the unemployed, and construction workers are snapping up small trucks to carry them and their tools to construction sites. GM reports a 44 percent pop in July sales of pickup trucks.

The outlook for the manufacturing sector is also looking up. New orders and production rose last month, and employment in factories expanded at its fastest pace in thirteen months. Inventories fell, which bodes well for future activity. It is not clear that we are having the much-touted “Manufacturing Renaissance,” but we are seeing an improvement in the manufacturing sector.

If Republicans don’t cut spending still more, Democrats don’t raise taxes, and Bernanke successfully begins a slowdown in his printing presses, the rest of the year might surprise on the upside, to borrow a phrase from Wall Street analysts.

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