No one would argue that the U.S. economy is in top form right now. Recent disappointing housing, GDP, and jobs numbers have together stoked widespread fears of further economic woes. As a result, some forecasters are now starting to lower their expectations for second-quarter growth. Some have cited the dismal indicators as major factors prompting the resignation of White House Council of Economic Advisers Chairman Austin Goolsbee. However, while foreclosures and slow job growth continue to be a drag on economic growth, there are a few glimmers of hope for the U.S. economy. Here are five reasons to be hopeful about the nation's economic future. [See a slide show of 5 bright spots in the U.S. economy.]
Double-Dip Still Not on the Horizon
Cold comfort, perhaps, but GDP growth of 1.8 percent is still, well, growth, and the economy has not shed jobs since September of last year. Furthermore, U.S. economic problems were not the sole cause of May's dismal economic indicators; the massive Japanese earthquake in March harmed U.S. economic growth by disrupting supply chains. And the Japanese are once again picking up the pace; Japanese industrial production increased by 1 percent in April after dropping by 15.5 percent post-quake.
Taking a broader perspective of the recovery thus far, there may be little reason to expect speedy improvements in the country's economic fortunes, says Jeff Werling, executive director of Inforum at the University of Maryland Department of Economics. "This is a big financial crisis, and financial crises and banking crises in particular always take a long time to unwind," he says. To make his point, he proposes a counterfactual: "In 2008, we were, we had a little bit of a mini-recession, and we seemed to be coming out of it, and then the financial crisis hit. Suppose we had skated by [the financial crisis]. ... Suppose we had recovery in 2009, 2010. If we were putting up the GDP and employment numbers that we are now, people would say that would be normal." Such a recovery would have been shorter simply because the recession would not have been so deep. [Read about how TARP worked--and how it didn't.]
Karen Dynan, vice president for economic studies at the Brookings Institution, seems to agree. "I don't think we're heading for a double-dip. During the entire recovery ... we've seen periods where things have picked up a bit, and we've seen slower patches, and people start talking about double-dips." The latest spate of discouraging indicators, she says, is simply an example of a slowdown in the midst of what is ultimately a larger recovery.
Manufacturing Is Looking Up
After a sharp and prolonged decline starting in 2001, manufacturing employment has started to pick up again in the last year and a half. According to the Bureau of Labor Statistics, since hitting a low of just over 11.4 million jobs in December 2009, manufacturing employment has increased by 238,000 as of May 2011.
Werling points to companies like Boeing and Caterpillar as examples of manufacturing companies that have been faring well, even as the economy remains shaky. Emerging markets, like Brazil, Russia, India, and China, are bouncing back from the global economic crisis quickly, he says, and are helping to keep demand high for manufactured goods, like construction and mining equipment.
Manufacturing's recent successes have not been lost on the Obama administration, which has lately been touting auto industry job gains in particular as evidence that the bailouts of Chrysler and GM were successful. Whether the bailouts deserve the credit remains a point of debate in Washington. But it is indisputable that the industry has posted improved jobs numbers: between June 2009 and May 2011, the auto industry added 113,200 jobs. [Read about the 10 worst cities for job-seekers.]
Gas Prices Easing
After climbing to nearly $4 per gallon in May, the national average for a gallon of regular gasoline currently stands at $3.771, down 20 cents from a month ago. Wholesale and crude oil prices have also declined steadily since April, fueling hopes of further drops in the months to come. Though gas remains still well above where it was a year ago, any easing of prices will also ease the economic strain on average Americans. [See editorial cartoons on gas prices.]
Recovering From the Debt Hangover
One major American economic problem prior to the financial crisis, according to Dynan, was widespread consumer debt, with many households having taken on unsustainable debt burdens. Throughout the downturn, many Americans reduced their borrowing, and many others also defaulted on their loans. Though borrowing can help boost economic activity and defaulting is rarely advisable, these two phenomena have combined to create a new trend: U.S. household debt has shrunk significantly. As a result, many households now have more disposable income, even as wages stagnate, says Dynan. "The ratio of required debt payments to income has fallen from close to 14 percent to less than 12 percent. So that is like having 2 percent more of income every month."
Accompanying that drop in debt is a glut of pent-up demand, as many consumers put off spending during the recession. This can be said for everyday items, says Dynan, but also for big-ticket purchases like housing, as people living with their parents or in group houses will purchase homes as soon as they get the means to do so. "When the economy does begin to pick up steam," she says, "then we can see a lot of household formation."
China's Declining Competitiveness
Chinese workers are demanding drastic pay increases. In 2010, wages at the country's small companies increased by 14.1 percent, and in the nonprivate sector, which includes government agencies and foreign-invested companies, wages grew by 13.5 percent. The increased labor costs ultimately help major foreign manufacturers, like the United States, says Werling. "We're already gaining competitiveness vis-a-vis China, because their wages are rising quite quickly. The fact that their wages are rising fast means that they are getting less competitive," he says. This new competitiveness comes at a time when many U.S. economists and policymakers are concerned about the value of the Chinese yuan, which the Chinese government has held artificially low, making for cheaper Chinese-made goods. Even if China refuses to significantly alter the yuan's value, the wage increases help the United States by appreciating the "real exchange rate" of the yuan, says Werling. However, there is a flip side to this trend: Chinese goods will now be more expensive for U.S. consumers.
- See a slide show of 5 bright spots in the U.S. economy.
- Check out a roundup of cartoons on the federal budget and deficit.
- Read about how TARP worked--and how it didn't.