It’s not quite the recovery that anyone wanted, but it’s a recovery all the same.
The world’s largest economy is still rumbling along in third gear. Unemployment remains too high for comfort; there are nearly 12 million Americans out of work. On Friday, the International Monetary Fund trimmed its 2014 projection for U.S. economic growth to 2.7 per cent, down from 3 per cent.
That forecast is nothing to get excited about: The U.S. averaged growth of 3 per cent from 2003 to 2006. Meanwhile, the prospect that the Federal Reserve will soon begin to pull back on the extraordinary measures it has been taking to stimulate the economy is roiling financial markets. U.S. stocks tumbled again Friday, and nearly $3-trillion (U.S.) of paper wealth has been erased in the world’s equity markets in the past three weeks.
But away from Wall Street, the story of the real economy has changed little in recent weeks. If anything, it is getting better. After several false dawns, companies are finding their footing and getting ready for future growth.
A host of indicators – from home prices to jobless claims to government deficits – point to an economy that is healthier than it has been since the financial crisis. It’s getting harder, in fact, to argue that this recovery lacks staying power. The green shoots that Federal Reserve Board chairman Ben Bernanke first mentioned in 2009 finally are transforming into something more substantial. President Barack Obama’s ill-fated “Recovery Summer” tour of 2010 came three years too soon.
The improvement is showing up in places like Michigan, where some builders are now complaining of a lack of skilled workers to keep up with demand for new construction, and Ohio, where unemployment has dropped to 7 per cent from a post-recession peak of 10.6 per cent a few years ago.
“We’re investing heavily,” said Roy Getz, chief executive officer of RCO Ltd., which runs 11 Raising Cane chicken restaurants in Columbus. He said traffic at his restaurants in the Ohio capital is so strong that he intends to add three locations this year. Next year, he’s planning to expand beyond his home base for the first time by adding four restaurants in Cincinnati. Each restaurant employs about 40 people.
As the U.S. economy goes, so goes Canada’s. The decoupling that appeared to occur between Canada and its largest trading partner in the direct aftermath of the financial crisis has proved illusory, the result of a more conservative banking system that was ready to translate the Bank of Canada’s record-low interest rates into cheap mortgages.
Now, Canada’s housing boom is running out of steam. Future growth, according to the central bank, will depend on business investment and exports. Both are contingent on the strength of the U.S. recovery. There’s reason to be optimistic because Canada is overexposed to the industries that are leading the U.S. rebound: Canada produces a lot of automotive parts and cuts a lot of lumber. The Bank of Canada predicts U.S. residential investment will grow at an annual average rate of 12.5 per cent between now and 2015, which should generate export growth in Canada of about one percentage point a year, based on historical relationships.
It is still far from an economic boom, of course. The National Federation of Independent Business’s monthly sentiment index is showing signs of life for the first time since the end of the recession, but still is weak by historical standards. This week, Michael Hartnett, chief investment strategist at Merrill Lynch, called this year’s surge in stock prices the “most detested” rally of all time, while Ethan Harris, the investment bank’s co-head of global economic research, said it is too soon to declare victory over the recession. “The economy just isn’t that strong right now,” Mr. Harris told reporters in New York.
It’s true. The IMF said budget cuts in Washington could reduce the expansion by as much as 1.75 percentage points this year, bringing 2013 growth down to 1.9 per cent. “The recovery in the United States of America is gaining ground and becoming more durable,” the fund’s managing director, Christine Lagarde, told a press conference in Washington Friday. “However, the economy has a way to go before it returns to full strength.”