January 15, 2012 8:46 pm
We’re back to the phantom future
We may be entering that economic twilight zone again. Last week the cognoscenti were enjoying their annual celebration of the forthcoming US recovery – an event dating back to 2009. Their relief may already have been suspended. Last week’s leap in the US trade deficit, showing that export growth slowed to zero late last year, and the disappointing December retail sales, suggest the horses may not be racing off the block in 2012 as some anticipated.
All of which is more relevant to Barack Obama’s re-election prospects than the Republican primaries. Instead of talk about a solid return to US growth, the conversation is drifting back to worries about anaemia and the “new normal”. In truth, one month’s numbers are as unreliable as another’s. December’s jobs growth brought good news. January’s data, which included a higher than expected jump in “those seeking work”, is troubling so far.
Neither should be over-interpreted: there are enough false prophets of doom to counterbalance the false dawns people keep seeing.
Perhaps the most honest perspective, and one cherished by forecasters, is that we have “low visibility” on the US economy. It is one of those catch-all phrases that might one day serve as an epitaph for our times. It may also help to remind ourselves just how bad the forecasters have been. A few years ago a Berkeley study apparently found that monkeys aiming at a dartboard were more accurate than professional forecasters.
To take a case in point, look at the US Federal Reserve’s 2006 transcripts, which were released last week. Among other things it showed that some of America’s best economic brains were oblivious to the dangers of the imminent, and in the event historic property crash: “I think we are unlikely to see growth being derailed by the housing market,” said Ben Bernanke. “But I do want us to be prepared for some quarter-to-quarter fluctuations.”
To be fair to Mr Bernanke, he was with the majority of economists. So was Mr Obama in the spring of 2010 when he launched a “recovery summer” blitz. In bipolar fashion it was soon replaced by fears of a double-dip recession. By this time last year, conventional wisdom had swung back to optimism before a combination of indebted Europeans and feckless US lawmakers again put a dampener on things. This writer lost count of the number of times someone said: “There are no adults in charge nowadays.” It is a Washington line that may resurface soon.
Congress returns from an undeserved vacation this week following one of the most destructive years in US legislative history. The main item on its agenda is the plan to extend the “mini-stimulus” to which Congress, in one of its bouts of last-minute soap opera, gave two months reprieve before Christmas. That takes us to February 29. As Mr Obama is unable to control virtually anything else that could affect US growth prospects this year, such as the fate of the euro, oil prices or the slowdown of China, he will try to ensure the renewal of the mini-stimulus. Failure to prolong payroll tax cuts and jobless insurance would mean the withdrawal of almost $200bn from the US economy at another fragile moment.
The runes are mixed. Mr Obama has made it clear he plans to run his campaign against a “do nothing” Congress. That may be justified as a description and it may work as a campaign theme. But it will be hard to square with Mr Obama’s other goal of ensuring that Washington at least does no harm to America’s 2012 growth prospects. The fact that Mr Romney’s attacks on Mr Obama are already over the top may also embolden more conservative congressional Republicans to spurn a deal with Mr Obama – or at least to raise the stakes of agreeing to one.
This month Mr Romney accused the president of “Chicago-style politics at its worst” over a relatively trivial manoeuvre. The rhetoric suggests that politics could be as big a drag on the economy in 2012 as it was in 2011.
In a speech last Friday Mr Obama urged Congress to give him the authority to shrink federal government, adding: “With or without Congress, I’m going to keep at it.” He could just as easily have been referring to his re-election campaign.
The chances remain that the mini-stimulus will be renewed. But on its recent record, it would be foolish to bet on Congress acting rationally, or on Mr Obama giving it a compelling incentive to do so. The pace is only set to intensify. Next week Mr Obama will give his annual state of the union address to Congress. It will follow hard on the heels of the Republican primary in South Carolina, where Mr Romney could cement his chances with a hat-trick (following Iowa and New Hampshire).
After that the Obama campaign’s eyes will turn to the January jobs data that come out in early February, which will show whether last month’s encouraging 200,000 jobs growth was sustained. The near future may also reveal whether the pick-up in consumer sentiment since last autumn had a brief pause last month.
The odds are still on a US growth rate of 2 per cent or more this year, which may be enough to keep unemployment inching downwards. But they are narrow odds – as indeed are those on Mr Obama’s re-election. Alas, visibility remains low and it will be a while before we can see round the corner.
Copyright The Financial Times Limited 2012.
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