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Job Growth Tapers Despite Summers' Growth

12:00 AM, Sep 7, 2013 • By IRWIN M. STELZER
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It’s not that anyone here in Washington begrudges Britain, and to some extent Spain, their fledgling recoveries. But President Obama and other proponents of more government spending aren’t delighted that those nations’ austerity programs seem to be paying off in renewed growth rather than in the perpetual recession the Keynesian try-another-stimulus-crowd in the White House has been predicting. Conservatives are saying that the austerity sauce for the British roast beef would be just as tasty on the U.S. hot dog.

Lawrence Summers Treasury portrait

On Monday the House and Senate reconvene, with Syria dominating the agenda. But key components of economic policy will also have to be addressed this month: funding the government’s operations; defunding  the unpopular Obamacare health care “reform”—or not; raising the debt ceiling—or not; approving another Obama stimulus  program—or not. For good measure Obama will be sending his choice of Ben Bernanke’s successor as chairman of the Federal Reserve board to the Senate for confirmation. So in the next 30-60 days most congressmen might have to take time from fundraising, photo ops, and posturing before television cameras to earn their salaries.

These debates between the president’s team and conservative Republicans, between those who want to launch a new stimulus program and those who want to keep the deficit declining relative to GDP, will play out against a background that includes a strengthening economy; a job market that remains less-than-satisfactory; a Federal Reserve Board that is considering whether to reduce its purchases of bonds and mortgages, to “taper” in the jargon of the trade; and a battle over the selection of chairman Ben Bernanke successor. Consider those in turn.

The Economy: The U.S. economy continues to grow at a “modest to moderate pace” concludes the latest Fed survey of the economy. Most of the bank’s 12 districts report rises in consumer spending, with autos and housing-related goods leading the way. Auto sales in August were up by 17 percent, with Ford reporting its best sales month in seven years, and Chrysler and GM racking up record sales for several of their brands. Ford is doing so well that rumors—denied at the company—have surfaced that its highly regarded CEO, Alan Mulally might be looking for a new challenge just when Microsoft is looking for a new chief executive. And the auto industry is doing so well that supplies of new vehicles are tight, allowing it to cut back on special deals and discounts, and prompting auto makers to expand capacity, by about 7 percent in the case of Ford.

The housing sector continues to show strength, with sales and prices of homes and of the stuff with which to furnish them showing no sign of slowing significantly—I am ignoring short-term blips—in response to higher mortgage rates. Several retailers responding to my questions whenever I pop into their establishments around the country tell me that August was their best month ever, and experts in the field say that the outlook for Christmas sales is better than fair, with the exception of shops specializing in teen apparel. It seems that in the battle for dollars between parents who want new couches and carpets, and teens lusting after still another trendy jacket, the grown-ups are winning. 

Add that the service sector grew in August at the fastest rate in almost eight years, and I am unworried about losing my bet with several colleagues—if the economy is not growing at an annual rate of 3 percent by year-end, I am to host a rather lavish dinner. My guess is that Societe General economists Aneta Markowska and Mary Beth Fisher have it right, “The U.S. economy will break above trend growth” beginning in the second half of the year. But it is less clear just how this growth will affect the labour market.

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