Much to be Thankful For
The positive economic news.
12:00 AM, Nov 27, 2010 • By IRWIN M. STELZER
Enough of what President Nixon’s equally disgraced vice president, Spiro Agnew, called the “nattering nabobs of negativism.” This is Thanksgiving weekend, and we Americans, who have just combined to consume almost 50 million turkeys, have much to be thankful for, and reason for cheer. The political system, which was out of kilter, has returned to sanity. The Democratic left can no longer ram its policies down voters’ throats now that it has lost control of the House of Representatives, and the Republicans have a blocking minority in the Senate. And the Republicans, now that they have a share of power, can no longer duck the responsibility of developing alternatives to President Obama’s programs to “transform” America. Yes, divided government might mean a stalemated government, but even that would be better than the pell-mell dash to uproot existing economic institutions that has characterized the past two years of one-party rule. Balance is better.
We can be thankful, too, that they have not suffered another devastating attack from Islamist terrorists. In part this is good luck, in part it is due to the fine work of the U.S. security services, operating in cooperation with their counterparts in Britain and other countries, in part it is due to President Obama’s courageous decision to face down the left of his party and keep the heat on al Qaeda in Afghanistan – the best defense being a good offense.
True, the economy is not recovering at a rate fast enough to bring down unemployment – at least, so far. And true, the political class has refused to address the budget deficit that is out of control: no spending cuts, say the Democrats; no tax increases, say the Republicans. But the posturing is about to end. The president’s deficit reduction committee has set off a debate on just what has to be done to rein in the deficit.
Perhaps most important, the economy might just be about to pick up a bit of speed. It should be noted at the outset of this attempt to sift through the data that the Federal Reserve Board’s monetary policy gurus don’t think so. Indeed, they have just revised their “central tendency” 2011 growth forecast down from 3.8 percent to 3.3 percent, raised their year-end 2011 unemployment rate guess from 8.5 percent to 9 percent and their 2012 expected jobless rate from 7.25 percent to 8 percent, where at least one Fed official, Sandra Pianalto, president of the Cleveland Fed, expects it to remain into 2013. The Fed has also raised its estimate of the long-term unemployment rate consistent with low inflation from 5.1 percent to 5.5 percent. This increased pessimism about both the near- and longer-term outlooks is what prompted the Fed to launch another round of quantitative easing, although even the committee members favoring QE2 expect it to have only modest impact on the unemployment rate.
Crucially, the Fed is not expecting a double dip, is not expecting runaway inflation, and is not expecting a deflationary spiral, fears of only a few months ago. Also, mix in with the Fed forecasts a dollop of the latest economic reports, and a few bits of anecdotal evidence.
The economy has expanded for five consecutive quarters. New claims for unemployment insurance continue to trend downward. If that trend continues, the economy might be on a path to creating the 200,000 new jobs each month that will begin to put a dent in the unemployment rate. Incomes in October rose by 0.5 percent, permitting consumers both to spend more (0.4 percent) and save a bit more. Compared with last year at this time, personal incomes are higher by 4.1 percent, and consumer spending is up by 3.6 percent. The Thomson Reuters/University of Michigan survey of consumer sentiment rose to 71.6 from 67.7 in October as consumers took a somewhat cheerier view of the labor market, perhaps because employers plan to hire 600,000 seasonal workers during the holiday season, up from 501,400 last year, according to the aptly named recruiting firm of Challenger, Gray & Christmas.
The corporate sector is also reporting better news. Corporate profits have been growing rapidly from their low in the last quarter of 2008, due in good part to rising productivity and overseas earnings, neither of which is a net jobs-booster in the short run. Unlike the residential property market, which remains in the doldrums, the commercial property market is rebounding. Prices in September increased at a record rate, according to Moody’s/Real commercial property price index. But they remain far below their October 2007 peak. The banks also seem to be doing better. According to the Federal Deposit Insurance Corporation (FDIC) the industry earned $14.5 billion in the third quarter, up from $2 billion in the same quarter of last year.