(Photo credit: clang boom steam)
It can’t all be bad, can it?
When the Commerce Department announced that the U.S. economy grew just 2.5% in the first quarter of 2013, it set off a new round of handwringing over what has proven to be perhaps the the most anemic economic rebound from recession in modern history.
Hollowed out by deep cuts in defense spending and the first bites of Washington’s ham-handed budget sequestration follies, the nation’s economy once again failed to muster true escape velocity, and missed somewhat optimistic predictions by economists, who had been hoping to see 3% growth in the past few months. And, they say, this could be the high water mark for recovery for some time, following a horrid 0.4% growth rate in Q4 of last year.
“With fiscal tightening weighing on the spring and summer quarters, we expect weaker growth ahead,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisers, said in a note to clients before the report, the New York Times reported. “We have seen good quarters before, but what counts is sustainability, and on that score we are deeply unconvinced.”
But it is worth keeping in mind that growth is, as much as anything else, a psychological state, especially in an economy where 70% of GDP is driven by consumers. For much of the last decade, we spenders have been locked in a cycle of fear (what if I lose my job? what if I lose my house?) that has held back the all-important urge to buy stuff that is the essence of the American economy. Without this part of the flywheel turning, there is no chance of real recovery.
And on that score, there are glimmers of hope today.
Despite a report that showed a decline in consumer sentiment in April, the GDP assessment for Q1 showed, for the first time in a couple years, consumer spending moving at a brisk 3.2% rate following a very un-merry 1.8% during the Christmas season. On this score, the economy beat economist’s predictions.
Why are we spending again? Because--against the odds, and in spite of Congress’s best efforts to sow insecurity through mismanagement--we’re feeling a bit better about the economy. Yes, payroll taxes are up, but the housing market has recovered quite a bit (making us feel more secure), and the Fed has kept money cheap for a long time and promises to keep doing so (priming us to spend). The job market is hardly awesome, but it isn't a complete disaster anymore. Inflation is flat. Energy costs are stable. For those millions of us who stuck with the stock market as it traveled through the abyss, the most recent quarterly 401K statement was a very sweet surprise. Despite the lackluster recovery, there has been a recovery, some 15 months of growth.
Again, no one piece of this of this is great by any means -- but taken all together, things are far better than they have been for millions of Americans. We’re responding to this bit of breathing room by doing what comes naturally -- breathing. Given everything that's happened, that's a good sign. Here's hoping it will outlast the Spring.
