Is there no way, said I, of escaping Charybdis, and at the same time keeping Scylla off when she is trying to harm my men?
We can argue if today’s encouraging numbers on consumer spending and personal income for November are skewed because it’s the holiday season (a.k.a. an excuse-to-spend season). We can also debate if yesterday’s downward revision in third-quarter GDP implies that the recovery will be unusually sluggish. And we can go back and forth over yesterday’s sharp rise in November sales of existing homes on whether that’s due a first-time buyer’s tax credit that expired last month. Of course, we can also throw around some ideas about how much if any of the government’s stimulus deserves credit for keeping the country out of the black hole of economics. But for now, the recovery trend in post-apocalyptic America is intact.
Deciding if it’ll remain intact is the great unknown. More than likely this will be a debate over the degree of the recovery’s magnitude and duration. Never say never, but short of a new and unexpected negative of some consequence arriving on the economic scene in the weeks and months ahead, the U.S. recovery has legs. Exactly how wobbly those legs prove to be is the question. But if we step back and look at the broader trend in the statistical front line for economic fate—spending and income—there’s no denying the upward bias, as our chart below shows.
There’s still plenty to worry about, but most of the anxiety is related to how the growth in 2010 plays out. Yes, there’s an expansion building, but it’s not yet clear it’ll suffice for the challenge ahead.
“I think we’ll be ‘driving sideways’ in both the California economy and the U.S. economy,” UC Berkeley economist Barry Eichengreen opines today. Meanwhile, Brian Bethune, an economist with IHS Global Insight, predicts the U.S. economy will expand by a modest 2.0% to 2.5% next year. “It’s a half-speed recovery.”
In other words, there’s some debate about how quickly the labor market will recover. The jobless rate remains at a lofty 10%, the highest in 30 years. In past cycles, the peak in the jobless rate was followed by a sharp and swift decline. Will history repeat? There’s some skepticism this time.
“I’m cautiously optimistic that the unemployment rate won’t get a lot worse,” Charles Ballard, an economist with Michigan State University, told the Detroit Free Press last week. “That’s not the same as saying it’ll get dramatically better in coming months. The economy remains pretty weak.”
One reason it may stay weak is the growing propensity to save. We should be cautious in assuming too much when it comes to Joe Sixpack’s inclination to renounce his spendthrift ways. Indeed, today’s income and spending report for November is hardly compelling evidence for thinking that the urge to consume has evaporated. But spending habits can and do change, although there’s no reason to think that change will come quickly. Consider the second chart below. Consumers are clearly saving more these days than they were when the Great Recession was just building a head of steam. Last month, personal saving as a percent of income was 4.7%, up sharply from the previous nadir of 0.8% in April 2008.
Saving is neither inherently bad nor good, although it does have economic ramifications depending on the time and context. The paradox of the moment is that America needs more saving to fund its mounting liabilities. Yet the same economy, which is overwhelmingly dependent on consumption, needs spending to bounce back and stay high to keep the rebound rolling and unemployment falling. There are no easy solutions for navigating the tight space between the economic Scylla and Charybdis that awaits. Even worse, evidence of success or failure will come slowly. It’s going to be a long 2010.
But, heck, Christmas is just two days away and it’s already been a long year. For the moment, we’re going to focus on Chart 1 and dream of sugar plums. There’ll be plenty of time to sober up in January.