A Recovery, If You Can Keep It

Inventories are falling, rents are rising, and construction employment is once again contributing positively to payroll reports.

It's tough saying anything positive about the American economy, given the objective situation. GDP growth seems to be stuck below trend. Recent employment growth has been too slow to bring down the unemployment rate.

For much of August and September, shocks threatened to knock the economy from a spluttering stall into an outright nosedive. No one thinks this economy is good. It's difficult to avoid noticing a hint of positive movement in the data.

For the last couple of weeks, a few key datapoints have surprised to the upside, including industrial production, consumer sentiment and employment growth. Markets have staged a surprising turnaround. American equities are up over 10 percent since October 4. Government bond yields are rising from record lows, indicating a bit more appetite for risk and greater expectations for growth.

The American economy avoided a drop back into recession; indeed, private-sector job growth held up remarkably well during the summer swoon. Having survived the latest round of threats, a few salutary trends have been able to reassert themselves. Balance sheets are slowly being rebuilt. Petrol prices remain below their spring levels. Housing markets are showing increasing signs of tightening up.

These are not the makings of a V-shaped recovery, but the difference between 1 percent and 3 percent growth is qualitatively substantial. It implies a much better picture for labor markets, a much better picture for credit markets, and a much healthier fiscal picture.

- Courtesy of R.A. Washington, The Economist