The U.S. Economy Has a Pulse
The U.S. has likely dodged a recession—for now. A string of stronger-than-projected statistics, capped by the news on Oct. 7 of a 103,000 rise in payrolls last month, has prompted economists at Goldman Sachs Group and Macroeconomic Advisers to raise their forecasts for third-quarter growth to 2.5 percent from about 2 percent. That’s nearly double the second quarter’s 1.3 percent rate and would be the fastest in a year.
“The U.S. economy doesn’t look like it’s double-dipping at all,” says Allen Sinai, chief executive officer of Decision Economics in New York. “But it is a crummy recovery.” Hazards ranging from Europe’s sovereign-debt crisis to budget gridlock in the U.S. could still kill the momentum.
The 103,000 gain in September payrolls announced by the Labor Dept. was more than economists had forecast and followed an upwardly revised gain of 57,000 for August. Private employment climbed 137,000. (That number included the return of 45,000 striking workers at Verizon Communications.)
The latest numbers bring the jobs data in line with other encouraging statistics. Construction spending rebounded in August, propelled by the biggest jump in state and local government outlays in more than two years. Manufacturing accelerated in September, helped by gains in exports and production. “For the first time in eight months, we revised upward our forecast of GDP growth over the second half, to just shy of 2.5 percent,” economists at St. Louis-based Macroeconomic Advisers said in a recent report. In September they were predicting second-half growth of less than 2 percent.
The drags on the economy in the first half of the year—higher gasoline prices and supply-chain disruptions from the earthquake and tsunami in Japan—are dissipating. The average price for unleaded gasoline fell almost 20¢, or 5.4 percent, in September to $3.43 a gallon, according to AAA, the nation’s largest motoring group. Car and truck sales rose to a seasonally adjusted annualized rate of 13.1 million in September, says Autodata. That’s the highest since April’s 13.2 million, when lost output caused by the tsunami started restraining supply. With dealer lots full once more and the economy ticking up, “people who have been sitting on the fence are likely to get back in the market,” says Al Castignetti, Nissan Motor’s vice-president of U.S. sales.
Several threats loom. A mild recession in the euro zone could shave as much as a half percentage point off U.S. expansion, says Nariman Behravesh, chief economist at IHS. The fallout from Europe’s banking crisis could still affect U.S. banks. And if a congressional supercommittee can’t come up with the more than $1 trillion in budget savings required by November, “that further undermines confidence in our own government,” says Diane Swonk, chief economist at Mesirow Financial in Chicago.
The U.S. also faces a big fiscal squeeze in 2012 from the scheduled expiration in December of a payroll-tax cut, extended unemployment benefits, and a business-tax credit. Economists at JPMorgan Chase put the amounts involved at about $350 billion, or the equivalent of about 2 percent of gross domestic product. Taking that money out of workers’ and companies’ pockets will hurt. “We’re still laboring under the fallout from the bursting of the housing and credit bubble,” says Jan Hatzius, chief U.S. economist for Goldman Sachs in New York. “In the aftermath of that, unfortunately, you’re often in a weak position for a long time.”