Recent unemployment figures and a scattering of other data have led many economists and policy makers to conclude that, at long last, the U.S. is...
Recent unemployment figures and a scattering of other data have led many economists and policy makers to conclude that, at long last, the U.S. is recovering from a terrible recession. The Dow Jones Industrial Average, considered a predictor of future growth, crossed the 13,000 mark for the first time since May 2008, GDP for the fourth quarter was revised upward to 3 percent, and consumer confidence jumped in February to the highest level in a year. Perhaps most dramatically, the price of gold dropped nearly $100 an ounce on Wednesday, which some analysts interpreted as a indication that the economy is doing so well that the Fed may revise its easy-money policies, thus pushing up interest rates. Higher rates may mean that investors will abandon gold for assets that pay income, like bonds and dividend stocks. The economy is definitely getting better in the very short term, but to call this recovery anemic is the understatement of the century. Some perspective is necessary, and typically the worse the recession, the stronger the recovery. History shows that in past declines GDP fell below its trend-line growth of 3.5 percent, but, after a few years at a higher level, it settled back to the average. As Jim Grant pointed out in the Wall Street Journal: “The Reagan recovery, starting in the first quarter of 1983, rushed along at quarterly growth rates (expressed as annual rates of change) over the next six quarters of 5.1 percent, 9.3 percent, 8.1 percent, 8.5 percent, 8.0 percent and 7.1 percent. Not until the third quarter of 1984 did real quarterly GDP growth drop below 5 percent.” Compare our recent growth rates. Yes, we made it to 3 percent for the final quarter of 2011, but growth for the year was just 1.7 percent. The bipartisan Congressional Budget Office is predicting 2 percent for the full year 2012 and just 1.1 percent for 2013.