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The Globe and Mail

Speed bumps still litter U.S. economy’s road to recovery

I'm not sure to what extent the readerships of Time and the Economist overlap. Those who picked up the print edition of only one of the two magazines this week would have been left with very different impressions of the state of the U.S. economy. Those who read both could be suffering from cognitive dissonance.

The cover of Time's July 28 edition features this teaser: "America's Comeback." Cool. About time.

Not so fast. The Economist's cover features a star-spangled jockey astride a tortoise. Ugh. The title: "America's lost oomph."

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Inside, the articles aren't as contradictory as the headlines. The writers of each simply are emphasizing different features of the recovery.

There is good reason to believe that America finally has found a stretch of open road that will allow it to make the Great Recession disappear from the rear-view mirror. However, the financial crisis may have played a cruel trick by replacing the U.S. economy's world-beating six-speed transmission with a more pedestrian five-speed model. That means new limits on how fast the world's largest economy can motor without overheating the engine.

Positive indicators are piling up. The four-week moving average of initial claims for jobless benefits dropped to 302,000 last week, the lowest since May 2007, according to government figures released Thursday. Earlier this week, a separate report showed sales of existing homes accelerated to their fastest pace since October of last year. Equity markets remain buoyant. The International Monetary Fund predicts the U.S. economy will grow 3 per cent in 2015, which would be the most since 2005.

Bob Wheeler, chief executive of Airstream, the Thor Industries Inc. subsidiary that makes the iconic camper trailers that resemble silver bullets, says he's experiencing Time's version of the U.S. economy. Revenue in the 12 months through June was 50 per cent higher than the same period a year earlier. He says the recreational vehicle industry already has shipped about 350,000 units this year, the most since 2007 and approaching the all-time record of 390,000 in 2006.

"The RV industry is kind of like the canary in the coal mine," Mr. Wheeler said in a telephone interview this week. "We're the first into, and the first out of, a recession. It's just the nature of the business that we're in…I'm not quite in a position to say that the economy in every sector is headed for great things, but certainly where we are, and the kind of product we make as an indicator, things look pretty rosy."

The pessimistic ones are the central bankers.

Bank of Canada Governor Stephen Poloz last week highlighted his "serial disappointment" in the Canadian economy's failure to launch in the year he's led the central bank. That has a lot to do with the U.S. economy, which suffered its biggest contraction since the recession in the first quarter.

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Many had high hopes for 2014. Now the forecasters say it could be the weakest year of the recovery. While predicting good things for 2015, the IMF this week cut its outlook for how much America's gross domestic product would expand this year to 1.7 per cent. That's more than a percentage point lower than what the fund was expecting in April.

The Federal Reserve now thinks the U.S. economy can grow little faster than an annual rate of 2 per cent without bumping up against its productive capacity and stoking inflation. As The Economist notes, America's potential growth rate exceeded 3 per cent in the 1990s.

While the U.S. economy clearly is on the rise, there are tethers that continue to hold it back. Buyers are snapping up existing units, but they are less keen on building new ones. New home sales dropped 8.1 per cent in June, offsetting a revised 8.3 per cent increase in the previous month, an industry report showed Thursday. Companies are hiring, and they are racking up profits, but they aren't investing much of that money.

The second-quarter Middle Market Indicator, a gauge of business confidence based on a survey of executives by National Center for the Middle Market, showed that 68 per cent of respondents had confidence in U.S. economy, an all-time high. Yet investment intentions were little changed from a year earlier, with about 63 per cent of executives saying they planned investments. That's a decent level, but suggests enthusiasm about the future is measured: executives appear to believe they don't need to do much to keep up with future demand.

Until they do, the U.S. economy will look more like a tortoise than a hare.

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