Economic Certainty—and Uncertainty
12:00 AM, Jan 28, 2012 • By IRWIN M. STELZER
Besides, it is not clear that the Fed’s pessimism is warranted, as there are signs that the recovery is accelerating. Factory production is now 15 percent above its recession lows. Orders for durable goods rose 3 percent in January, after a 4.7 percent increase in November. Several of the Federal Reserve districts—Richmond, New York and Philadelphia—are reporting healthy gains in their manufacturing sectors. And many regional banks are reporting an increase in the demand for loans from businesses finally willing to expand.
This bounce-back is receiving significant help from a rise in exports that has accounted for about half of U.S. economic growth since the end of the recession. Exports are growing at an annual rate of 16 percent, putting them on pace to reach the president’s target of doubling to $3.1 trillion by 2015—if the present growth rate in exports can be maintained, which some analysts doubt.
The housing market is also showing signs that it might finally have hit bottom. Sales of existing homes rose in December for the third straight month, as low interest rates and lower home prices are making homes more affordable than renting. The supply of homes listed for sale is now at its lowest level since 2006. And even in Phoenix, one of the most depressed housing markets in the country, frowns have turned to smiles as homebuilders are stirring after a long period of inactivity. All in all, good news for Americans, which is why consumer confidence increased this month, and bad news for Republicans who have been secretly hoping that the president will not be able to claim that his policies are finally working.
This will undoubtedly be grist for the mill of at least some of the Republicans vying for their party’s presidential nomination. They fear that if the recovery does accelerate, low interest rates and renewed bond buying by the Fed will allow the inflation genie to escape from its bottle. Newt Gingrich has promised to fire Federal Reserve Board chairman Ben Bernanke, which of course he would be powerless to do even if he wins the nomination and bests Barack Obama at the polls, there being the small matter of the law governing the term of the Fed chairman. Ron Paul has gone further: he would abolish the Fed if given the chance, which he won’t be. Mitt Romney undoubtedly has a position on all of this, but it is not obvious to even the intensely interested observer.
So goodbye uncertainty, or at least some of it. The nation’s debt will rise; interest rates will not; manufacturing will trend up, as will home sales. Feel better?