Amid talk of U.S. economic decline, it is important to remember that the country has demonstrated extraordinary resilience. The U.S. experiences a recession or sharp downturn once a decade, but invariably the economy recovers and the country comes back.
Once again, the U.S. economy is posting red-hot growth rates, outpacing the forecasts and confounding experts who see a country that has lost its vitality.
According to revised figures from the Department of Commerce, the U.S. economy expanded at an annual rate of 4.6 percent in the second quarter of 2014 (April to June), considerably larger than the previous estimate of 4.2 percent.
This is the strongest growth in the U.S. since the end of 2011 and follows a 2.1 percent contraction in the first quarter of the year, a fall that resulted from bad weather that kept shoppers at home and depressed manufacturing.
The upward revision in growth reflected larger rises in exports — which increased more than 11 percent from the previous quarter — and business investment, which grew just under 9.7 percent from the previous three-month period. Consumer spending figures were unchanged, growing 2.5 percent in both estimates.
The sharp bounce between quarters looks like more than a recovery from bad weather. Economists believe the expansion reflects a strong foundation for steady growth. Partial data indicates that the expansion continued into the third quarter.
Optimists take heart from job figures released last week that show the U.S. unemployment rate falling to 5.9 percent in September, a 0.2 percentage point drop from August. The addition of 248,000 jobs in September was above expectations, contributing to the lowest unemployment rate since July 2008.
As President Barack Obama explained in a speech last week, when he took office, U.S. businesses were shedding 800,000 jobs a month and the unemployment rate had reached 10 percent. Five years later, 10 million jobs have been created in “the longest uninterrupted stretch of private sector job creation in our history. …
“Right now, there are more job openings than at any time since 2001. All told, the United States has put more people back to work than Europe, Japan and every other advanced economy combined.”
Meanwhile, the U.S. trade deficit fell in August to the lowest level since January — an unexpected development for experts. The drop was attributed to the transformation of U.S. energy economics. The production of new supplies of oil has led to record oil exports as well as import levels that are more typical of recessions.
Experts caution that consumers remain worried about the sustainability of the job situation, and that since consumer spending constitutes two-thirds of the U.S. economy, their concerns will undercut any robust enduring recovery.
Economists point to stagnant wages as the chief problem: In the absence of larger pay checks — average hourly wages actually declined by a penny in September — the recovery feels temporary. That is a conundrum that Japan knows well.
Other numbers suggest consumer behavior could just be a lagging indicator. The average workweek has lengthened for the first time in six months — from 34.5 hours a week to 34.6 hours — which should, in tandem with dropping unemployment rates, put upward pressure on wages.
In addition, after-tax corporate profits are soaring, recording their fastest growth in two years during the second quarter of 2014. Business investment is rising at a steady clip, another development that should soon trickle down to workers.
In sum, the U.S. economy has expanded more than 3.5 percent in three of the last four quarters. If growth tops 3 percent for the third quarter of 2014, Obama will be able to take credit for the strongest period of continued expansion since 2004-2005. Nothing is guaranteed, though.
There are external risks to the U.S. economy: A crisis in the Middle East or a standoff in Europe with Moscow, or an economic slowdown in the eurozone — because of political or other reasons — or in China.
The real U.S. concerns are internal. The first question is when the U.S. Federal Reserve will allow interest rates to rise from the near-zero levels it has maintained since the financial crisis hit in 2008. All indications are that the fall in the unemployment rate to under 6 percent will prompt the Fed to act.
The Fed’s quantitative easing program is set to end this month. The one-two punch of terminating that stimulus effort and raising short-term interest rates could be more than a shaky recovery can bear.
Fed Chairwoman Janet Yellin has said there will be an interlude between the two moves. If the inflation hawks can be kept at bay and interest rates are gradually adjusted, the transition should not throttle the recovery.
The second internal factor is U.S. politics. If the recent past is any guide, Republican control of both houses of Congress (after the November elections) could prompt a standoff between the executive and legislative branches.
It is not clear how far the GOP will go in its efforts to force its agenda on the president. If it is still willing to risk the credit rating of the U.S. by refusing to authorize an increase in the debt limit, or is prepared to shut down the government again, then the economy could nose-dive again. Those odds on either event occurring are long, but real nevertheless.
As always, they are a reminder that the most important constraint on U.S. standing in the world — a function in the first instance of its economic and political performance — is its own behavior.
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