Published on ZNet, by Jack Rasmus, August 14, 2013.
For the past several years, the US press, pundits, and apologists for both liberal and conservative politicians in the US have jumped at every slight indication of this or that monthly economic indicator showing improvement. The hype that followed typically declared the ‘recovery was now solidly underway’. That has been the media ‘mantra’ now for the past four years. Each time, the temporary good news was reversed, however, revealing the US economy was not on a trajectory of sustained economic recovery, but instead ‘bouncing along the bottom’, growing at a rate typically half that of recession recoveries in the past.
This summer 2013 has been no exception … //
… The US Economy 2012-2013: … //
… The 2nd Quarter 2013: … //
… A Scenario for the Remainder of 2013:
The factors contributing to US economic growth thus far in 2013 were primarily consumer spending on residential housing and auto sales, and the aforementioned revisions to GDP investment in the second quarter.
Both housing and auto sales now face significant headwinds with rising interest rates, show initial signs of slowing, and therefore are questionable as major contributing factors to further US economic growth for the remainder of the year—especially should interest rates rise once again. Should the US Federal Reserve begins to slow its $85 billion a month money injection, as most market analysts predict will soon happen, US interest rates will rise still further.
That will not only slow consumer spending and investment further, but will raise the value of the US dollar relative to other currencies, subsequently slowing US exports and the latter’s already weak contribution to US GDP in coming months as well.
Rising rates will also dampen business investment, at a time when businesses show little interest in expanding inventories of goods on hand from current lows.
It is worth noting that the mere suggestion of the Federal Reserve reducing its $85 billion a month money injection this past June 2013 provoked a major contraction of financial markets. The US 10 year Treasury bond in real terms rose 1.3% in a matter of a few weeks. That benchmark rate has significant impact not only on housing mortgages but auto sales and other rates negatively impacting consumption and investment. Should the Fed actually start ‘tapering’ its $85 billion in coming months, as is highly likely, that will almost certainly result in a further reaction by financial markets, possibly much worse, and this time perhaps enough to slow consumption, investment and the economy still further.
Added to all this, Government spending continues to be negative force and may even worsen significantly with another round of deficit spending cuts later this year. The very strong likelihood of another fight over the deficit, Obama’s budget due October 1, funding the federal government, and over extending the debt ceiling once again, will have further negative psychological effects on the US economy in coming months.
The US economy may thus, in the immediate months ahead, confront a dual problem of Fed ‘tapering, rising interest rates, more deficit cutting, and a renewed debt ceiling fight with its negative psychological impact similar to that witnessed in 2011 during a similar event.
Finally, unknown ‘tail events’ in the global economy cannot be ignored either. The often heard prospect that the US economy will soon pull the rest of the world onto a sustained growth path is wishful thinking. The Euro economy as a whole continues to ‘bounce along the bottom’, with little or no growth in its northern ‘core’ and continuing depression in its periphery. China appears headed for a hard landing, as its own long term growth rate continues to slow and the potential grows for a real estate bubble bust of major dimensions. Other BRIC economies (Brazil, Russia, etc.) continue to struggle with a 1% average growth rate and are also ‘bouncing along the bottom’. And what was heralded as the new growth sector in the global economy only a few months, Japan’s growth rate has again slowed significantly in the most recent quarter.
In short, the longer term trend indicates the US economy is ‘bumping along the bottom’, growing most likely at no more than 1%-1.5% annually—hardly a rate to cheer about or to claim sustained economic growth has finally arrived. Contrary to the continued hype about a robust ‘snap back’ about to occur in the second half of 2013, there is little sign this will happen. The factors that have been responsible for that weak barely 1% longer term growth rate are themselves showing signs of slowing: housing spending, auto car sales, wages and household income, and government spending. And other major headwinds in terms of fiscal and monetary policies in the US, and in the broader global economy, are emerging on the horizon.
Nevertheless, the US economic recovery ‘spin machine’ continues to grind on—as it has for the past four years—declaring this time will be different and the ‘light at the end of the tunnel’ is real and not just a locomotive coming down the track.
(Jack Rasmus is the author of the book, Obama’s Economy: Recovery for the Few, published by Pluto Press, London, April 2012. He is the host of the weekly internet radio show from New York, ‘Alternative Visions’, on the Progressive Radio Network, prn.fm. His website is Kyklos Productions.com and he blogs at Jack Rasmus.com. His twitter handle is drjackrasmus).