This is not exactly news because we of the thread were convinced all along that we ought not be too convinced ...
iht.com
Beneath a sturdy veneer, a wobbly U.S. economy
By Louis Uchitelle (The New York Times)
Tuesday, May 7, 2002
Now comes the hard part.
Put aside the recession, and the marvelous surge in the first quarter. That certainly did wonders for appearances.
But, in fact, the U.S. economy is like a brightly painted pier without enough piles to support it. Step too hard in the wrong place, and the pier sags into the water. The hard part is putting enough piles in place before reality overwhelms appearances.
Just two piles sustained appearances in the first quarter, making the economy seem sturdy. They were stepped-up government spending - for defense at the federal level and public works at the state and local levels - and stepped-up business spending to maintain stockpiles of merchandise after they were depleted during the recession.
Take away these supports, and the economic growth rate, instead of being a robust 5.8 percent annually, would have been a meager 1.3 percent.
The latest gross domestic product data for the first quarter - once the piles were counted - made up the first clear signal that the quick recovery that everyone yearns for, and that many forecasters still promise, is unlikely.
In case anyone missed the signal, the employment report issued Friday amplified it. With job creation almost nonexistent, the unemployment rate jumped to 6 percent in April from 5.7 percent in March.
It goes almost without saying that the Federal Reserve's policymakers, when they meet Tuesday to discuss interest rates, will not raise them. Just a couple of months ago, many forecasters expected rates to be rising by now in anticipation of potentially inflationary growth.
"We are compiling a picture of an economy that is going to struggle," said Mark Zandi, chief economist at Economy.com.
Economic growth is a tricky concept. Even without growth, the dynamic U.S. economy churns out more than $10 trillion a year in goods and services. That number has to rise continuously, however, by at least $300 billion a year to generate enough jobs. Each additional $100 billion increase adds a percentage point to the GDP growth rate.
In these metrics, inventory replenishment contributed a hefty 3.1 percentage points of the first quarter's 5.8 percent growth rate.
That sort of replenishment is not likely to be topped this quarter, with its sudden signals of weak growth. Why replenish only to be stuck with unsold goods? Government spending shows similar stress after contributing 1.4 percentage points to first-quarter growth, half of it at the federal level and half at the state and local levels. Federal spending went up because of rising outlays for defense.
That could happen again. But many states and cities have begun to slash spending in response to lower-than-expected tax revenue.
There are the usual standbys: Residential construction added 0.7 percentage point. House building, already at a record level, rose more. Can it go even higher in the second quarter, making another contribution to growth? Most experts are doubtful.
Consumer spending is the other heavy-hitter. But consumer spending at home cannot be separated in the GDP from net exports, which are what the United States sells to consumers abroad minus the greater amount it imports. Together, consumer spending, globally defined, contributed only 1.3 percentage points in the first quarter and is in danger of falling in the second.
But one can always hope. The expectation of Kathleen Cooper, the Commerce Department's undersecretary for economic affairs, is that corporate profits will revive, encouraging businesses to step up investment in machinery and software and lifting growth. Maybe. There is some stirring in that area in this quarter. But not yet enough to make more piles to support the glossily painted but shaky pier. |
