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Assemblyman Brian Mullins works on a Ford Expedition at the auto maker’s Michigan Truck plant in Wayne, Mich. (Carlos Osorio/AP)
Assemblyman Brian Mullins works on a Ford Expedition at the auto maker’s Michigan Truck plant in Wayne, Mich. (Carlos Osorio/AP)

A star-spangled recovery: Why the U.S. economy is showing signs of life Add to ...

That mixed view is echoed by Douglass Henry, chief executive officer of Henry Molded Products Inc., a company that makes packaging material in Lebanon, Pa. “Business is going pretty well,” he said. “It’s not great, it’s not bad, it’s okay.”

Mr. Henry, who employs about 100 people making custom packaging from recycled paper for everything from wine to automobile parts, said growth is being restrained by a lack of overall confidence and uncertainty about Washington’s plans for tax and regulatory policy.

But there’s reason to think the U.S. will have its swagger back by the second half of the year. Todd Groome, who runs Dalkeith Management Group, an economic and financial consultancy in Oakton, Va., says the current fixation on stock market gyrations and high-frequency data obscures the fact that the U.S. economy has turned a corner.

“As an investor, I don’t want to be right today – I want to be right six or nine months from now when the stock is going up,” said Mr. Groome, a former adviser at the IMF, where he specialized in financial stability. Mr. Groome is more optimistic than his former employer, predicting U.S. gross domestic product could expand by as much as 2.5 per cent this year and by as much as 3.5 per cent in 2014.

Every economic rebound needs a housing boom, and the U.S. finally has one: New home sales were almost 30 per cent higher in April than a year earlier. Americans purchased automobiles at an annual rate of 15.3 million units in May, roughly the average pace between 2002 and 2010, according to Bank of Nova Scotia.

It’s politically convenient, but President Barack Obama has a point when he says the economy has created private sector jobs for more than 30 consecutive months. Furthermore, the U.S. increased its oil production by more than one million barrels a day in 2012, the biggest gain ever, according to six decades of records kept by BP PLC.

Both factors suggest consumer demand will continue to gather strength. The U.S.’s energy boom – the result of advanced technology that is allowing drillers to tap oil and natural gas embedded in shale deposits – is keeping a lid on gasoline prices, leaving more money in the pockets of consumers and lowering the input costs of U.S. manufacturers.

America’s energy boom is also brightening Mr. Henry’s outlook. The economy might only be “okay,” but that was enough to persuade Mr. Henry to set up a new plant in South Carolina, creating jobs for a few dozen people. His confidence in doing so was bolstered by the prospect of a steady supply of cheaper energy. “We’re holding our own,” he said.




Budget crisis! What budget crisis?

Remember the Standard & Poor’s downgrade? The debt ceiling? The “fiscal cliff”? In a shift, the U.S. is entering a phase of budget calm instead of hurtling from crisis to crisis. The Congressional Budget Office last month slashed its deficit estimate for the fiscal year ending in September to $642-billion (U.S.), or about 4 per cent of gross domestic product, which would be the smallest shortfall since 2008. The across-the-board cuts in the “sequester” are part of the story, but the bigger factor is increased revenue.

An aging population still threatens to reflate the deficit through higher demands on Medicare, the health program for seniors. But that’s several years away. For now, a shrinking deficit promises to bolster confidence and lower the temperature in Washington. S&P this week changed its outlook on the U.S. to “stable” from “negative,” saying politicians have some “breathing room” to sort out longer-term budget issues.

Housing has a long way to run

Every recovery needs a housing boom, and the U.S. finally has one. Prices for existing homes are rising, and supply is relatively tight, good news for contractors – and sellers.

The cities that came to exemplify the housing bust now are leading the turnaround. Prices in Phoenix rose 22.5 per cent in March from a year earlier, according to the most recent reading of the S&P/Case-Shiller big-city price index. That was faster than technology hotbed San Francisco, where prices increased 22.2 per cent. Prices in Las Vegas climbed 20.6 per cent.

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