Here Comes a Recovery—Maybe
12:00 AM, Mar 3, 2012 • By IRWIN M. STELZER
Don’t feel embarrassed if you can’t figure out where the American economy is headed. I don't. After all, Federal Reserve Board chairman Ben Bernanke told the House Financial Services Committee last week that the economy is sending “somewhat different signals” about growth. The good news is that the signals seem to differ only in the speed and strength of the economic recovery that now seems to be underway.
A survey of business conditions around the country by the Federal Reserve Bank of St. Louis concludes, “overall economic activity continued to increase at a modest to moderate pace…. Manufacturing continued to expand at a steady pace across the nation … [with] increases in new orders, shipments or production … [and] gains in capital spending.” Good news, too, from nonfinancial services industries and on the consumer front, with “the sales outlook for the near future … mostly optimistic.”
There is more, and better. The stock market has opened the year with its best performance since 1998. The Federal Deposit Insurance Corporation reports that bank lending in the final quarter of 2011 grew at the fastest rate in four years.
The Conference Board finds that consumer confidence rose sharply in February, in part because the labor market has improved. Wage and salary income is up 5 percent over last year, and the Economist reports that the number of unemployed workers per job opening has fallen from a peak of seven workers to below four. Even though some of the wage gains were wiped out by inflation, what John Maynard Keynes called “the money illusion” operates to make people feel good when their pay packets thicken even if each dollar buys less.
More confidence and more money mean more sales. Cars are selling at their fastest pace in four years. A group of 18 leading retailers reports that sales in February rose by 6.4 percent – high-end Nordstrom up 10 percent, mid-range Macy’s up 4.6 percent, low-price Target up 7 percent. All benefited from an 8.5 percent increase the average person spent on Valentine’s Day items, especially the Limited’s Victoria’s Secret chain, which saw sales jump 10 percent.
It doesn’t get much better than that for an economy that many forecasters thought would tip into recession. Perhaps the only thing that can make the White House happier than watching the president’s Republican opponents destroy one another is this recent turn in the economy. But it’s a long, long way from March to November, when voters go to the polls. For one thing there is the small matter of rising gasoline prices. These morph from merely irritating to “why doesn’t the president do something?” when the national average hits $4 per gallon, which level already prevails in some parts of the country. John Hofmeister, former president of Shell Oil, expects prices to reach $5 per gallon this year. If prices do soar to that level voters would wonder why the president will not allow drilling in Alaska, or in much of the offshore, and why he refused to grant permits to a pipeline that would have permitted the importation of more oil from Canada, America’s largest and most stable source of crude. He would be hard pressed to explain how the green energy sources he has been subsidizing are of any use to motorists, who can’t pull their cars up to the nearest windmill for a refill.
Deutsche Bank figures that the burden of oil prices on the economy is already at the highest level since 1983. Anything higher would almost certainly abort the recovery, as past price spikes have done, which is one reason Obama will try to persuade Israeli prime minister Benjamin Netanyahu at their meeting on Monday, to keep his jets on the ground and give sanctions a chance to work. Netanyahu will have to decide whether to risk his nation’s survival by crediting the president’s promise to use American military assets to knock out Iran’s nuclear facilities if sanctions fail to stop Iran from getting a nuclear weapon.
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