Summer is approaching and nerves are jangling. In recent years the green shoots of the early months withered in the heat of summer. The queue of people worried that this summer will be another in which a recovery is aborted is long: the unemployed, retailers, investors, President Barack Obama and his team, incumbent congressmen of both parties, home builders, and car salesman—to name just a few. Mitt Romney, although not one to wish the nation ill, would be less than human if he did not feel a frisson of excitement at every bit of news that suggests the green shoots won’t flower until after the November elections.
Friday’s jobs report provided the Republican contender with just such a frisson. Only 115,000 jobs were created in April, and the unemployment rate dropped from 8.2 percent in March to 8.1 percent, the lowest level since Barack Obama took the oath of office in January of 2009, but only because thousands more workers gave up the job hunt. If those discouraged workers had remained in the work force, the unemployment rate would be in double digits.
GDP, which grew at the satisfactory rate of 3 percent in the final quarter of 2011, managed only a tepid 2.2 percent growth in the first quarter of this year. That’s half the growth rate of all our recoveries since World War II. Some economists estimate that unseasonably warm weather—the warmest since 1895—added 0.2 percent to growth. Worse still, 0.6 percent of the first quarter growth in output merely swelled inventories of unsold goods. Back out the weather and inventory build-up, and growth comes to a measly 1.4 percent. Business investment declined at an annual rate of 2.1 percent. A bad start to the year—bad enough, in the words of the Wall Street Journal, “to give the word recovery a bad name.”
To make matters worse, Europe is sinking into recession—after the eleventh monthly increase the unemployment rate is 10.9 percent and rising—and France (budget deficits for the past 35 years) has been added to Spain (one-in-four workers unemployed) as a country too big to fail and too big to save. That won’t help U.S. exporters, already staggered by the speed of the slowdown in demand from China.
There is some good news. Corporate profits in the first quarter of this year topped last year’s level by more than 6 percent, or over 4 percent if Apple’s massive profits are backed out of the figures for the 500 companies in the Standard & Poor’s index. Some 70 percent of the S&P 500 companies beat analysts’ estimates. Better still, most of the improvement comes from U.S. operations, offsetting the weakness companies such as General Motors, UPS, and Starbucks report for their European businesses. But note that the first quarter figures are a three month average, with January and February doing better than March, in which month orders for durable goods recorded their largest drop in three years, and factory production declined, perhaps presaging a slowdown in the following months.
Or perhaps not. The very latest data suggest that the recovery remains on course. Not at a rate that creates enough jobs, but one that permits the president to claim that he has turned around the recession he inherited. The University of Michigan index of consumer sentiment rose a bit in April: both households’ assessment of current economic conditions and their expectations of the future both rose. With 16 of the 18 industries in the Institute for Supply Management’s Index (SMI) reporting gains, activity in the manufacturing sector rose for the 33 consecutive month, and at the fastest pace since June of last year. Most important, the new orders’ index, an indicator of the level of activity in coming months, rose sharply. “Encouraging,” Goldman Sachs economists say. And private sector spending rose sufficiently to offset a decline in spending by state and local governments.
Then there is the housing sector, always the most difficult to analyze, in no small part because several indexes are published and often point in different directions. The fairest summary seems to be this. Prices have stopped falling, and if prices paid for foreclosed (repossessed) properties are excluded, might be rising a bit. The inventory of foreclosed houses that overhangs the market is being worked off as investor groups buy them for refurbishment and conversion into rental units. The rise in pending home sales (deals not yet closed) means that new-home sales and sales of existing homes will rise in coming months, and realtors (estate agents) in some cities are already complaining of a lack of properties to show potential buyers. The supply of homes that are empty and waiting to be sold is down, as is the apartment vacancy rate. The recovering economy has stimulated the rate of household formation—the sighs of relief you might hear are parents regaining control of their television sets and fridges. There are one million more households in the U.S. than at this time last year, the largest increase in six years. Construction of new homes is scheduled to increase by about 24 percent this year.
All of these figures do not represent a return of the glory days before the housing bubble burst: mortgages are still difficult to come by, and more foreclosures are in store. But along with my conversations with builders they suggest that the worst is over, and that the housing sector will not be the drag on the economy that it has been for the past several years. Moreover, the recovery seems to be spread across both the country and price brackets. Phoenix, Arizona, perhaps the hardest hit market, saw prices fall by over 50 percent. Now, realtors report multiple bids on lower-end houses. On the other end of the country, and the price spectrum there is New York City, a magnet for foreigners who are out-bidding local billionaires who bid a mere $40 million for top-of-the-line condominiums—with the record sale so far this year topping $50 million, small change by London standards, but enough to make more than a ripple in the Big Apple property market.
The politics of all these data are obvious. Obama will claim that his policies have created hundreds of thousands of jobs, and converted a serious downturn into an upturn. Romney will point out that after spending trillions of dollars the president has succeeded only in restoring the unemployment rate to the level he inherited.
We know this: The American economy is continuing a sluggish recovery, but one so far incapable of creating enough jobs for Americans who want full-time work. What we don’t know is where we are headed in the next several months.