Searching for the economy’s new normal
The first quarter of 2015 is not starting out with a bang. Several new economic indicators came out this week, which, taken individually are not overly noteworthy, but if you bundle them all up, they begin to indicate that tales of the resurgent U.S. economy might be slightly over-exaggerated.
Industrial production rose just 0.2 percent in January, slightly less than expected. Housing starts also fell 2 percent in January, and add to the mix the tanking price of oil which dragged producer prices down to a five-year low.
So is the overall trend of positive economic forecasts still on track, or starting to stumble? Well, half the country is still buried under snow to think about spending all that extra gas money we’re carrying around.
“You know, it really is an issue of where you lose and where you win,” says Diane Swonk, Chief Economist at Mesirow Financial. “There’s no way to recoup the wages lost in some areas where you just couldn’t get to work because of the weather, or stores couldn’t open or had to close.”
Swonk points out that cold weather may be slowing home building. An ongoing strike by longshoremen on the West Coast is also holding things up.
“Suppliers, retailers, a lot of people who can’t get the goods they need to distribute them, all of this disrupts and displaces economic activity,” says Swonk.
Producer prices are falling, which means it’s cheaper for manufacturers to make things, which if continued over the long-term, can actually restrict economic activity — but at this point, that remains a pretty big “if.”
“In fact, the decline in producer prices is actually hiding a good thing, it’s driven by declining oil prices,” points out University of Michigan Economist Justin Wolfers. Overall, he says he’s still bullish on the U.S. economy.
“The most reliable data we have shows that firms have been hiring and hiring pretty rapidly. So, I think there is probably at least as many people worried that the economy is growing too fast, as those that think we’re on the cusp of a downturn any time soon,” says Wolfers.
Other indicators, such as unemployment, continue to trend in a positive direction. A big problem for economists and policymakers going forward is just trying to establish what a “normal” data looks like in the post-recession economy.
“I mean I definitely think we shouldn’t panic about the new normal not being the same as the old normal, that doesn’t mean it’s a bad normal,” says Diane Lim with the Committee for Economic Development.”
What Lim is saying is the Great Recession changed household behavior, around things housing and spending, and economists might just have to wait a little while yet to say precisely how.
“It’s a tricky thing to conduct policy around,” point’s out Lim, “A lot of it will be, ‘Let’s wait and see where the economy seems to settle after the recovery is through.'”
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