An unseasonal economic chill
LATE spring with its warm sunlight is a particularly lovely season across most of North America. Hence news accounts that the United States, and its neighbors, are caught up in an economic chill seem inappropriate. The American economy particularly, the engine for the region, needs a bit of extra oomph about now -- perhaps by the Federal Reserve Board cutting its discount rate, and thus lowering interest rates -- if there is to be any significant growth this year.
The latest downbeat statistic was the Commerce Department's revision of the US gross national product for the first quarter of the year. The department is now estimating the growth in first-quarter GNP -- the value of goods and services -- at a rate of 2.9 percent, down from an estimated 3.7 percent. This is hardly spectacular for an economy that the White House has been insisting would come in at a rousing 4 percent or better for the year.
Nor is the immediate period ahead expected to be much better. A number of forecasting services, such as Data Resources Inc., are talking about growth in the low 2 percent range for the second quarter, although the third quarter looks stronger. However the next few months come out, the point is that getting the year's growth rate up above 3 percent appears increasingly difficult.
What does one make of such tepid growth? Should Americans, and their lawmakers, be concerned, since the economy overall is humming right along, with employment at record levels; more women than ever in the work force; the stock market up; inflation low; and interest rates, as consumers would see it, at their best levels in years?
In broad terms, the economy continues to be strong, particularly for this stage in a period of economic expansion. Many expansionary cycles have a way of closing off. This one has proved durable.
Still, the nation's policymakers would be remiss to overlook a more worrisome factor, with long-range social implications. The statistics now coming out of Washington suggest an uneven economy with a split personality. If you are able to put money in the stock market (which has been heading up), you are no doubt holding your own, or doing even better; that is also true for the first-time homeowner able to buy one of those new ``housing starts'' reported in the papers; or if you are a manager of a service-oriented firm.
But if you are associated with the manufacturing, agricultural, or energy-related sectors, events are less encouraging.
The manufacturing and energy sectors continue to post declines. The nation's factories, mines, and utilities operated at only 78.6 percent of capacity in May. The four-month decline since January was the steepest since the end of the last recession.
Growth is taking place mainly in low-paying service jobs. One of the reasons for last month's jump in unemployment was that the gain in service jobs (200,000) was offset by declines in the auto industry (down 15,000 workers) and the oil and gas business (down 30,000).
Which brings us back to Washington and its lawmakers: Business leaders need a relative sense of economic certainty as they prepare their own plans for the future. Washington needs to put its budget house in order. It needs to resolve the deficit issue and confront the trade imbalance that has thrown so many manufacturing workers off assembly lines. And it needs to enact a tax reform measure that does not work against capital formation, as to an extent the Senate tax bill would do.