I’ve been swamped all week and thus unable to sit down and plot the economic data of the moment. I might get to that later, but until then, here’s a quick, informal assessment of current conditions.
–The bottom line is that we’re slogging along at trend–about 2% of GDP–and probably will be for the near future. At trend, the unemployment rate pretty much stays where it is. Ergo, the slog.
–Headwinds will push against that but there are tailwinds too.
–The former include mostly Europe, weak employment and earnings, and potential self-inflicted fiscal wounds. Europe is probably already shaving 25-50 basis points off of current GDP growth and that’s unlikely to get any better any time soon. It could get worse, of course–that’s the conventional wisdom. But I doubt Europe does much more short-term damage to our GDP growth this year. If things unravel there, upgrade that 25-50 bps to at least 1% in 2013.
–Real wages are flat–real weekly earnings were up 0% over the past year. Consumer spending is thus weak and that’s showing up in flat retail sales.
–But there are two notable tailwinds: gas prices and housing. The average price at the pump is down about 20 cents over the past few months. That’s big, and if it sticks, it will continue to help to offset the euro-drag.
–Housing looks to me and other analysts who track the market like we’ve finally carved out a bottom. I can’t say we’re doing much more than bumping along that bottom right now, but that’s actually a potentially very good sign. Home prices must stabilize before they start reliably rising. There’s more home equity as folks deleverage (pay down debt, including mortgage debt) and refi into very low rates. And even prices of distressed sales are looking stable.
–This last point re housing is the newest and most important thing going on right now. But there’s no guarantee. If everything breaks bad and we start growing below trend, there could be another leg down in home prices. That would be a horrible squandering of some actual economic progress and should be assiduously avoided.
–Which means Congress really shouldn’t screw around with the fiscal cliff and the debt ceiling and throwing the economy under the bus in coming months for political gain.
Do you think that last sentence is just too damn obvious to even write down? Would it were so.