Economic indicators are up. Does it matter?
The Leading Economic Index rose for the fourth straight month, according to data released Thursday. It indicates that the recession is fading, but some analysts say the recovery will be weak.
The road ahead for the US economy is looking brighter. But that doesn't mean Americans will be on Easy Street.Skip to next paragraph
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A widely watched index of indicators that forecast the economy's future direction rose in July for the fourth straight month, the Conference Board in New York reported Thursday. The business research group said its Leading Economic Index rose 0.6 percent for the month.
To many forecasters, this adds to growing evidence that the US and global economies are beginning to leave recession behind after a financial crisis of historic proportions.
But very few see this improvement translating quickly into what feels like strength in the job market, the housing market, or retail sales.
“The turnaround will not be simple,” he wrote in an article released by the IMF. “The crisis has left deep scars, which will affect both supply and demand for many years to come.”
Because the recession was not run-of-the-mill, and the recovery won’t be either, he warned.
What’s hopeful is that the big declines in economic activity appear to be over. Six of the leading index’s 10 components improved last month, three fell, and one was neutral. In an important shift, two of the factors showing improvement were tied to the job market: initial claims for unemployment insurance and average weekly hours worked in manufacturing.
Economists generally expect to see US gross domestic product grow in the current quarter and beyond, while other key nations around the world also may have turned a corner toward growth.
Some forecasters say the recovery could prove to strong, despite the lingering effects of the financial crisis. But many others see signs that the recovery will be weak:
• Many households need to reduce their debt level or increase savings, which could keep the expected recovery of consumer spending from gaining much steam.
• As the recovery gets under way, private-market interest rates are expected to rise. Central banks will come under pressure to tighten monetary policy to avoid a new bout of inflation or bubbles in the price of assets like real estate, commodities, or stocks.
• Fiscal-stimulus programs from the government are slated to end in 2011. Blanchard says the world economy needs to make a transition from government-led growth back to normal consumer-led growth by then, or face the difficult choice of whether governments should try spend still more on stimulus.
Blanchard says a second type of rebalancing also needs to occur: an adjustment to consumer demand among key nations in the world economy. For sustainable long-term growth, he says Asian nations should promote domestic demand for goods, and focus less on exports. The US economy, long the key source of demand for Asian exports, may need to produce more goods for export, and thus reduce its level of borrowing from the rest of the world.
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