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Capitol Report
April 13, 2010, 6:00 p.m. EDT · Recommend (5) · Post:
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By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- The U.S. economy appears to be strengthening following the worst downturn in generations, but the recovery isn't setting anyone's heart on fire.
Most of the hard economic data point to steady if unspectacular growth over the next year or two. The unsustainable boost from inventories and from government stimulus is giving way to a resurgence in private demand.
Consumers are spending, companies are profitable, and inflation is low. The Dow is up and factories are busier. Businesses are beginning to hire workers.
/conga/graphic-features/recovery.html 70266Despite the growth in gross domestic product, the increase in sales and the rebound in manufacturing output, the economy still suffers from severe structural defects that could hobble the recovery for years. The hangover -- from too much debt, too much consumption, too much housing -- hasn't been cured.
Of course, for millions of Americans who've lost their jobs, or seen their wages stagnate, or had their home taken from them, the idea of recovery is a joke. For those who go to bed hungry and wake up worried, it always feels like a recession.
Analysts who track the economy have generally become more hopeful in the past few months. They point to the many positive factors in the economy, and they predict steady above-trend growth of around 3% annualized for the next two years.
Those same analysts also believe the unemployment rate will decline very slowly and recognize that the rising tide isn't lifting all boats -- some are mired on the bottom.
Federal Reserve Chairman Ben Bernanke summed up this cautiously optimistic view in a speech last week, when he said: "The economy has stabilized and is growing again, although we can hardly be satisfied when one out of every 10 U.S. workers is unemployed and family finances remain under great stress."
Bernanke will testify at the Joint Economic Committee on Capitol Hill on Wednesday. He's expected to flesh out his views, explaining why he's unwilling to raise interest rates quite yet for fear of choking off the recovery.
There is an opposing view, of course. The more pessimistic economists worry that the negatives in the economy will begin to outweigh the positives, dragging down the growth rate. Another recession is unlikely, but possible, because the painful but necessary adjustments in the economy haven't been completed.
"The U.S. economy faces several structural headwinds," said economists for Goldman Sachs, who, at 2.5%, have the lowest 2010 GDP forecast among 53 economists surveyed by Blue Chip Economic Indicators.
Among those headwinds: weak labor income; the decline in spending by states and cities; the large oversupply of homes, offices, hotels and factories; and the continued credit squeeze. "As a result, we expect growth to slow gradually to an annual rate of 1.5% in the second half of 2010 before reaccelerating in 2011," Goldman economists wrote.
Everyone on both sides of the debate recognizes the same positives and negatives, but they weight them differently. The outcome could hinge on intangibles, such as confidence, which can be the decisive factor in decisions about investing, spending and saving.
We've already seen how increased confidence has boosted stock prices, with investors encouraged that the worst is behind them.
Chip giant Intel Corp. met a high bar of expectations for the first quarter, and then some.
5:17 p.m. April 13, 2010 | Comments: 7
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