So This Is a Weak Economy?
The U.S. expansion has been strong and steady despite the warnings of fragility, the repeated claims of a slowdown, and the fear of China (as intense as the Japan fears of the 1980s). U.S. growth has averaged a fast 3.9% pace since the initial 7.4% tax-cut-related growth celebration in the third quarter of 2003. Thanks in large part to smaller businesses, U.S. unemployment has fallen to 5.1%, with wage and salary income growing at a 10% annual rate in the revised fourth-quarter data. Beyond housing, household liquid assets have increased more than both total debt and foreign debt, helping build solid resources for the future. Add to that the nation's biggest unrecorded asset -- a robust system of innovation, market-based capital allocation, and decentralized decision-making.
Yet the litany against the U.S. economy is so ingrained and familiar that few disputed this spring's "slowdown." When strong data on income, employment, consumption and profits showed 3.5% first-quarter GDP growth and a continuation into the second quarter, the headlines shifted to other attacks -- adjustable-rate mortgages, a housing "bubble," the distribution of income -- rather than revising the slowdown story.
The recent decline in bond yields is being presented as a likely economic slowdown and a justification for the Fed to stop hiking rates. But similar yield declines gave way to solid growth and higher yields in both 2003 and 2004. Rather than a "conundrum," bond yields in the U.S. and abroad are probably being held down by the extraordinary U.S. monetary accommodation since the 9/11 attacks and an underestimate of its inflationary consequences.
One of the most needed steps in finding good policies is to marshal more understanding and confidence in our own economic system's strengths and weaknesses. The first issue facing policy makers (and investors) is whether current growth is a fragile interim between the deflation crisis of 2001 and a new crisis; or, more likely, a durable expansion in which each quarter's strong growth argues that we're on the right path, with an urgent need for more structural improvements.
Mr. Malpass is chief economist at Bear Stearns.
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read the entire article if you get a chance, it was in today's WSJ but Steve at Econopundit got it straight from the horses mouth, as such I think (hope?) it is okay t link to.