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2:32 pm
August 20, 2013
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Executive Outlook 2013: Great News — Congress Does Not Control The U.S. Economy

0813eoabbIf it seems like it’s taking a long time for the U.S. to rebound from the Great Recession, that’s because it is. In fact, the pace of this recovery is about half that of others experienced since the end of World War II, but it also seems weaker. That may be because, while businesses took the hit early and have since recovered (both investment and production levels are in line with previous recoveries), individuals have fared far worse.

The destruction of jobs and personal wealth that took place in 2008/9 was unlike anything most of us have ever witnessed. Job creation since the recovery began remains anemic at 5.4%—half the average gain in postwar recoveries. Similarly, real consumer spending since 2009 (8.3%) is roughly half the historical average for postwar recoveries. Household net worth has increased by 23.2%, which actually is higher than the average, but most of that increase has flowed to the wealthiest among us (i.e., those with the most in the game as securities markets turned up).

Housing presents another challenge. New and existing home sales are increasing now, but they were flat for most of the last four years. Consequently, new home construction has not played its usual key role in building a recovery. At the same time, despite a recent uptick in home prices, homeowners still do not have as much equity with which to support new spending.

The bottom line is that the current economic recovery is fighting against a lack of demand. Historically, people have spent more coming out of a downturn but, for various reasons, they are not spending as much this time around. So, what can be done to spur growth?

In the short term, there are tax breaks such as the recent payroll tax cut, and stimulus spending like the American Recovery and Reinvestment Act of 2009. Longer-term growth, though, will require changes that are more structural in nature: Expanding foreign trade, controlling the cost of entitlement programs, fostering game-changing technologies, reforming the tax code to reduce loopholes while broadening the base—all of these would produce a healthier economy. However, given the current political climate, it is unlikely that any action on the scale required will emerge from Washington in the near future.

The good news is that Congress does not control the economy, which is showing new signs of life. The National Association of Home Builders index of homebuilder confidence rose to 57 in July, a 7½ year high. That index measures the industry’s view of current conditions with a score of 50 as break-even. Homebuilders’ view of future conditions (i.e., single-family home sales over the coming six months) came in even more solidly positive, with a score of 67 on the same scale. 

Barring some unforeseen crisis (e.g., the conflict in Syria boiling over into a regional war), the recovery will likely proceed. Things are moving in the right direction—albeit more slowly than we would like. Perhaps the greatest mistake now would be to allow a strengthening economy to gloss over the need for more fundamental reform. It won’t be easy, but reform is needed, if not to bolster the recovery in the short term than to support broad-based growth over the long term. MT

More Executive Outlooks:

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Enrique Santacana, President & CEO, ABB North America

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William J. Stevens, President & CEO, Motion Industries

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Steven P. Richman, President, Milwaukee Tool Corporation

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Poul Jeppesen, President and CEO, SKF USA Inc.

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Ralf Kraemer, CEO, Klüber Lubrication North America

0813eorockwell 

Mike Laszkiewicz, Vice President & General Manager, Power Control Business, Rockwell Automation, and Chair, Manufacturing Council

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Jay A. Burnette, President, Waukesha Bearings Corporation

0813eonidec

Rich Heppe, President, Industrial Motors, Nidec Motor Corporation

 0813eoemerson

Steve Sonnenberg, President, Emerson Process Management

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Wes Pringle, President, Fluke Corporation 

 

 


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