segunda-feira, 25 de maio de 2015
America’s disappointing economic recovery
The coming turn in US interest rates may be the most telegraphed in many cycles. Yet for all Janet Yellen’s strivings at clarity, the US outlook remains clouded by poor visibility. Last week Ms Yellen said the Federal Reserve was still likely to raise interest rates this year — possibly in September — in spite of the sharp slowdown in first-quarter US growth. For one reason or another, including a series of harsh winters, growth in the first three months of the year has tended to underperform the rest of it, often heavily so. The US economy shrank by an annualised 2.9 per cent in the first quarter of 2014 only to rebound in the next three. Hopefully this year’s anaemic 0.2 per cent first quarter expansion will be equally misleading.
It would, however, be rash to make assumptions. It is quite possible 2015 will end as it began with US interest rates still on zero. As Ms Yellen put it: “Based on many years of making economic projections, I can assure you that any specific projection I write down will turn out to be wrong, perhaps markedly so.”
Of course, there is a chance her expectations will be wrong on the upside. The Fed is forecasting US growth of 2.5 per cent for the next two years, which is only marginally above the tepid rates achieved since the start of the recovery, which is now about to enter its seventh year. Should unemployment fall to 5 per cent by the end of 2015, wage growth may finally start to pick up, in which case the Fed will probably need to remove the punch bowl. The balance of risk is skewed the other way, however. After years of virtually no income growth, Main Street is unprepared for positive shocks. It is, for instance, striking that that the US consumer has opted to pocket the recent gains from lower petrol prices rather than boost spending. The same applies to corporate investment, which remains disappointingly weak. The US economy’s key growth drivers each seem to be waiting for the other to move first. Investors are reluctant to invest and consumers are hesitant to spend. What will it take to stoke their animal spirits?
Ms Yellen’s candour on the limits of what monetary policy can do is also striking. The Fed has kept its pedal to the floor for seven straight years. Yet US growth since the collapse of Lehman Brothers in 2008 has consistently undershot previous recoveries. According to HSBC, average US growth in the seven years from the previous peak was 3.5 per cent after 1981, 3.1 per cent after 1990, 2.1 per cent after 2000 and 1.1 per cent since 2007.
The direction is unmistakable. Some economists are even talking of a “great reset” that will require the US to adjust downwards to Japan-style growth. That is probably too gloomy. America has repaired its balance sheet far more rapidly than Japan did in 1990s and its demographic outlook is far healthier. The US also remains the most innovative economy in the world. Yet the growth outlook remains checked by a very un-American sense of pessimism.
If, as expected, US growth rebounds in the next two quarters, Ms Yellen may have little choice but to raise rates in September or shortly afterwards. America’s troublingly low labour force participation rate gives her little leeway to do otherwise. But the turn in the US cycle is likely to be shallow and moderate. It may take years to return to trend interest rates. As Mohammed El-Erian put it, the US is readying for the “loosest tightening in the modern history of central banking”. In an era of tentative forecasts, that is probably as close to certainty as we will get.