Budget crisis! What budget crisis?
Remember the Standard & Poor's downgrade? The debt ceiling? The "fiscal cliff"? In a shift, the U.S. is entering a phase of budget calm instead of hurtling from crisis to crisis. The Congressional Budget Office last month slashed its deficit estimate for the fiscal year ending in September to $642-billion (U.S.), or about 4 per cent of gross domestic product, which would be the smallest shortfall since 2008. The across-the-board cuts in the "sequester" are part of the story, but the bigger factor is increased revenue.
An aging population still threatens to reflate the deficit through higher demands on Medicare, the health program for seniors. But that's several years away. For now, a shrinking deficit promises to bolster confidence and lower the temperature in Washington. S&P this week changed its outlook on the U.S. to "stable" from "negative," saying politicians have some "breathing room" to sort out longer-term budget issues.
Housing has a long way to run
Every recovery needs a housing boom, and the U.S. finally has one. Prices for existing homes are rising, and supply is relatively tight, good news for contractors – and sellers.
The cities that came to exemplify the housing bust now are leading the turnaround. Prices in Phoenix rose 22.5 per cent in March from a year earlier, according to the most recent reading of the S&P/Case-Shiller big-city price index. That was faster than technology hotbed San Francisco, where prices increased 22.2 per cent. Prices in Las Vegas climbed 20.6 per cent.
Building permits, an indicator of future construction, increased 14.3 per cent in April, to an annualized rate of 1.02 million, the highest since June, 2008.
Building activity is on the rebound because there is a lot of ground to be made up. From the beginning of 2000 to the end of 2006, single-family housing starts never were lower than an annualized 841,000 and more often topped one million. In April, the figure was 454,000. There is some concern that the recent jump in mortgage rates could snuff out demand. But that seems unlikely. Mortgage applications increased 5 per cent in the week ended June 7, even as 30-year mortgage rates crept to their highest in more than a year.
Cities and states are spending again
The U.S. should be growing at annual rates of about 3 per cent. Instead, the economy will do well to grow at a pace of 2 per cent in the second quarter. That's because of "fiscal drag," which mostly is represented by the blunt, across-the-board cuts that Washington failed to finesse earlier this year. But austerity is running its course at the state and local government level.
Government revenues are bouncing back, partly because of the housing rebound, which brings in property and development taxes and benefits lower levels of government more than Washington. Nominal state spending is projected to rise 4.1 per cent in the fiscal year that ends June, 2014, according to the National Association of State Budget Officers. In May, state and local governments hired more workers than they fired for the first time since June, 2009.
America doesn't need our (Canada's) help
The weakest element of the U.S. economy right now is manufacturing, as weak global demand stifles exports. That's a headwind, but not a body blow. The U.S. still is a consumption-based economy, as domestic spending accounts for more than 70 per cent of gross domestic product. And guess what? U.S. consumers are raring to spend.
Housing and automobile sales are surging. There is every reason to think this is a trend. The U.S. dollar is getting stronger, making imports cheaper. Gasoline prices are falling, saving consumers money. The manufacturing industry has stalled, but services – representing the bigger part of the economy – continue to grow. Consumer confidence readings are at their highest levels since before the financial crisis.
The jobs are coming
The Labour Department's non-farm payrolls report – the one that gives the unemployment report – galvanizes the market's attention. That's a little odd, considering that the estimate has a wide margin of error and is backward looking. Todd Groome, a consultant and former International Monetary Fund Economist, prefers to watch the four-week moving average of weekly initial jobless claims, which dropped to 345,250 in the first week of June. Mr. Groome says a four-week average of about 350,000 correlates with non-farm payroll growth of 200,000 – the level needed to start significantly lowering the unemployment rate from its current level of 7.6 per cent.
Hyper-competitive
Global trade is in stasis because Europe is in recession and Chinese growth slowed to hot from white hot. Trade will rebound eventually, and when it does, the U.S. is poised to dominate. The productivity of the U.S. tradable goods sector is dramatically stronger than other developed countries, according to research by Michael Dolega, an economist at Toronto-Dominion Bank.
The country's oil and gas boom is lowering costs for manufacturers and transportation companies, and the still-elevated unemployment rate is keeping downward pressure on wages. As a result, more and more factories are being built or expanded. Manufacturing jobs won't ever reach the levels of decades past, but they will increase from current levels.
Small business is getting bigger
World-beating American companies such as Apple Inc., Nike Inc., Goldman Sachs Group Inc. and Deere & Co. dominate the headlines. But smaller companies are just as important to the U.S. economy, if not more so. Companies with 500 and fewer employees have created 80 per cent of the jobs this year, according to Automatic Data Processing Inc.
Smaller businesses have had it tough during the recovery. They have found it harder to obtain credit and are not as well-equipped to deal with the changes demanded by President Barack Obama's health care policy. But there are signs these firms are about to turn a corner. The National Center for the Middle Market, a Columbus, Ohio-based research group that studies companies that earn between $10-million and $1-billion annually, polls 1,000 executives of such companies quarterly: Almost three-quarters of those executives said they are confident in their local economies in the first quarter, compared with 70 per cent a year earlier. The National Federation of Independent Business's activity index is showing signs of life.
It looks like the economy is gradually, but finally recovering - and the experts seem to be confident. On the government side of things, the Senate overwhelmingly passed a two-year budget by 64-36 - near supermajority - the first since 2009. The Federal Reserve has also taken its cue and has begun slowing down the expansion of monetary supply.
Does this give you confidence in the future of the United States? What kind of direction would you like to see this country take now that it is (or seems to be) entering good economic times? As a consumer and a worker, where does this put you - is what the experts are saying reflective of your experience?
Personally, I am looking forwards to the American recovery in an international context, hoping for it to raise demand for international goods and recover international trade. I'm also hoping for the US government to take steps to reduce its deficit - given higher tax revenues - and as well invest in education and renewable energy. Countries tend to react during a recession, but I hope this will be an opportunity for the US government to be proactive and take the country in a new direction. Obviously, as an outsider, I'm not qualified to give my perspective in any other capacity ^^
https://www.theglobeandmail.com/report-on-business/economy/a-star-spangled-recovery/article12579981/?page=1