Good News on the Economy

We're beginning to see the outlines of an economic recovery. The recession may not be officially over, but GDP has been growing, stocks are up, and the economy is beginning to create jobs. Robert Samuelson:

What's also encouraging is that the recession's severity has left much pent-up demand. Mark Zandi of Moody's Economy.com reckons that the underlying need for housing (new households, destruction of older homes) totals about 1.85 million units a year. Meanwhile, home and apartment construction is running at only about 600,000 a year. "We're working down a high inventory of unsold homes," says Zandi, "but housing will come back." The same logic applies to cars and trucks: Sales collapsed from 16.2 million in 2007 to 10.4 million in 2009. They're bound to rise.

A final favorable omen is Corporate America's strong cash position, reflecting deep cuts in jobs and capital spending, says economist Nariman Behravesh of IHS Global Insight, a forecasting firm. In 2009, business cash flow equaled 11 percent of gross domestic product (GDP), the highest in at least half a century. As companies gain confidence that the worst is past, they have the cash "to make a bet on recovery" by restarting canceled investment projects, says Behravesh. IHS Global Insight expects business spending on machinery, computers and software to increase 9.6 percent in 2010.

Daniel Gross has a cover story in Newsweek that makes the case for America's comeback. Recently Floyd Norris wondered, "Why is good news being received with such doubt?"

Part of the reason is that while the news may be good, it's not really good. Burrow into the March job numbers, and your smile begins to fade -- we need 100,000 jobs a month to keep pace with population growth (we got 162,000), and much of the March hiring was due to the Census Bureau. The financial sector is still a mess. So is housing. The price of oil is increasing. Households and governments are saddled with debt. Tax rates and interest rates are going to go up. Just to ruin your day, Kevin Drum runs through some other worrisome things here.

So it's a mixed bag. But I think we can still say, with a reasonable amount of certainty, that the prosperity engine that is the American economy is beginning to hum. After all, the natural tendency of economies is to grow, and as we move farther away from the crash that tendency will become more pronounced.

Democrats believe that once the economy returns to normalcy the Tea Party will disappear and Obama's approval rating will climb. They're wrong, because while the economy contributes to Obama's unpopularity, it doesn't explain everything. The Tea Party isn't primarily motivated by unemployment and lackluster GDP growth. It's motivated by tax hikes and government spending and public debt and regulatory overreach and the sense that nobody pays attention to the Constitution anymore. None of those issues is going to disappear once the economy comes back (though debt may be less of an issue if we experience fantastic growth and the government suddenly is flush with cash). Nor is health care reform going anywhere. The public hasn't changed its opinion of the bill now that it's law, and Obama's position has actually eroded since health care's passage.