Outlooks

The U.S. Economy: A Soft Patch, Not a Recession


It’s never good when economic indicators start coming in below expectations. Today the government reported the sharpest monthly decline in wholesalers’ sales since the recession month of March 2009. Another report today, dubbed “blah” by JPMorgan Chase (JPM) economists, showed a decline in hiring in January. And the small business optimism index for February retreated to its lowest level since last March, 91.4—“a reading that historically has been associated with recessions and periods of sub-par growth,” according to the National Federation of Independent Business (NFIB).

The soft numbers feed into the impression that the U.S. economy could be stalling out. In a Bloomberg View column on March 10, investment adviser Gary Shilling said a recession is “long overdue by historical standards” and ticked off a number of things that could precipitate one at a time when growth is fragile, including crises in Ukraine, the Middle East, or China; emerging-market contagion; and global protectionism, possibly touched off by a trade dispute between Japan and South Korea.

But don’t get too pessimistic too soon. The predominant view among professional economists is that this expansion has room to run. The median forecast of those surveyed by Bloomberg is for the U.S. economy to grow 2.9 percent this year, the best since before the 2007-09 recession, and then keep going at a 3 percent growth rate in 2015 and 2016.

There’s reason for that relative optimism. Almost five years after the end of the last recession, there’s still pent-up demand for housing and autos, which are two of the sectors that traditionally power a recovery, says Michael Englund, chief economist at Action Economics in Boulder, Colo. The U.S. is still getting dividends from the fracking boom, says Englund. He attributes much of the current weakness to severe winter weather and the retreat from an accidental overbuilding of inventories.

It’s often said that uncertainty is holding back the expansion—the NFIB said it again today—but as Englund sees it, the outlook is actually less uncertain than it’s been in a while. There’s still slack in the economy, so there’s no great risk that overheating will end the expansion. The stiff 2013 tax increases are behind us, and the threat of a debt-ceiling default has receded. “It’s about as risk-free an environment as you get for an economy,” he says, adding as “an asterisk” that geopolitics could still screw things up.

I also spoke with Robert Shapiro, chairman of Sonecon, an advisory firm. “What we’re seeing is more consistent with a pause in the expansion than a real slowdown,” he said. “A pause can turn into a slowdown, but I don’t see it yet.” Shapiro noted that the monthly jobs numbers—the most important indicator of the economy’s health—indicate an economy that’s growing, not faltering. And he said Federal Reserve Chair Janet Yellen is highly sensitive to any danger signs. Going out on a limb, he said he “would not be surprised” if the rate-setting Federal Open Market Committee turned more dovish at its meeting on March 18-19, possibly even slowing its taper of bond purchases.

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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