The U.S. economy is still not good. Unemployment is at 7.5%, and would be higher if so many people hadn't dropped out of the labor force. Wages for many who do have jobs are stagnating.
But the economy is gradually getting better. Consumer confidence is at a five-year high and new claims for jobless benefits at a five-year low. In the past six months, employers have added 200,000 jobs a month. That isn't enough to bring the jobless rate down quickly, but it's better than the 140,000 a month added in the previous six months.
Car and light-truck sales are running 7% ahead of last year, and most of the increase came from made-in-America vehicles. The latest Case-Shiller index of home prices, though far from its precrash peak, is 10% above year-ago levels. Despite Wednesday's dip, stock-market indexes are up more than 15% so far this year. And some analysts see the recent upturn in yields on Treasury debt as a traditional market signal that the economy is improving.
Yes, the across-the-board government spending cuts of the sequester and tax increases that hit at the start of the year are depressing consumer spending. And, yes, Europe's morass is hurting U.S. exports.
But in spite of that, the rest of the U.S. economy is doing surprisingly well.
So does that mean that our troubles are finally over? That we can be confident pleasantly faster growth and normal levels of unemployment lie just ahead? Unfortunately, no.
Forecasters anticipate second- and third-quarter growth will be slower than the 2.5% initially reported for the first quarter. (The government issues its revised first-quarter estimate on Thursday, but it isn't likely to change much.)
One reason is that the economy has yet to feel the full squeeze of federal-government spending cuts. Indeed, William Dudley, president of the Federal Reserve Bank of New York, says a particularly important factor in the coming months will be "how well the economy fights through the significant fiscal drag."
Another worry is the recent vigor of consumer spending, boosted by bullish headlines about the
stock market and the rebound in home prices, is unlikely to persist without an increase in
household incomes; they are barely keeping up with inflation. the improving confidence of
U.S. busiensses and consumers is vulnerable to all sorts of far-from-remote possibilities- the
fickleness of the stock market, confidence-rattling stumbles in Europe or China or Japan,
another showdown over the U.S. federal debt ceiling.
