A Lot of Data, but Only One Conclusion: There is More Work to Do
This week is heavier than usual in terms of important economic data releases. We have already seen the construction spending, new home sales and vehicle sales data from October, as well as the ISM manufacturing and non-manufacturing indices from November. We have also seen the November data on employment from ADP, and we will get the government’s employment data on Friday. It pleases me to say that all of these data indicate that the recovery in the U.S. economy is getting stronger.
But we have seen this before. In fact, we have seen this several times during the past five years. Since the recession ended in 2008, there have been a handful of times when it appeared as if the economy was gaining long-term momentum. And just when it looked like the pace of economic growth would break out of the 2-percent-per-year range, some dark clouds would emerge on the horizon that would constrain confidence and keep the pace of recovery subdued. I will not bore you with the whole list of issues that have killed our recovery groove during the past few years, but I will say that Congress was to blame on more than one occasion.
Looking forward, there are a number of potential threats (both global and domestic) to a more rapid pace of economic growth in 2014. And it saddens me to say that the most obvious one is yet again our elected policymakers in Washington, D.C. Until the business sector gets more clarity about how Congress is planning to resolve the issues surrounding the budget and the federal debt ceiling in the first quarter, it would be imprudent to expect a large acceleration in economic growth next year.
There are also some longer-term issues pertaining to things such as the Affordable Care Act and corporate tax reform that will keep the brakes on economic activity until Congress can get over its dysfunctional state and demonstrate an ability to get something done. These longer-term issues will not likely be resolved until after the election late next year, if at all.
Many of the recent trends in the economic data suggest there is potential for a very positive outlook, but recent history suggests that such a positive outlook is far from certain. And that is the problem. We need to see more rapid growth before we become more confident in the recovery, and we must act with more confidence if we want to see more rapid growth. It is a chicken-and-egg type of dilemma that will most likely not last forever, but I cannot say with certainty it will end anytime soon. When the recovery finally does break out of its current lackluster pace of growth we will hear about it from the politicians and we will see it in the data, so stay tuned.