Green Shoots Starting to Blossom
Federal Reserve Chairman Ben Bernanke used the term “green shoots” in March 2009 to describe a U.S. economy that was showing signs of pulling out of the Great Recession. Over the intervening three years since the first signs of a coming expansion were visible, those green shoots have grown frustratingly slow. While GDP has increased in every quarter since 2009Q3, the rate of increase has been too slow to lift the trailing edge of the economy….until now. Recent economic data clearly show gathering momentum in the U.S. economy. Payroll job growth has exceed 200,000 per month for the three consecutive months ending in February. With stronger labor markets, consumers are feeling more confident. Also, consumer debt burdens are now very low. This is allowing consumers to feel comfortable about unleashing demand pent up since 2008. Auto sales have climbed to a 15.1 million unit rate in February. Retail sales gained 1.1 percent for the month. Business confidence is improving too. Small business hiring is lifting out of the basement. Housing markets are showing the first signs of recovery. Prices in some of the hardest hit markets, Detroit and Phoenix, are stabilizing. Home sales are lifting nationwide. Residential construction is on an upward trajectory. The economy is still well short of a complete recovery, and downside risks lurk, including higher oil prices and recession and financial market stress emanating from Europe. But recent U.S. data are showing that those green shoots, first visible three years ago, are starting to blossom.
The March 13 meeting of the FOMC resulted in no new policy initiatives from the Federal Reserve. This is a case when no news is good news. The FOMC provided a slightly more upbeat assessment of economic conditions and repeated its pledge to keep the fed funds rate at exceptionally low levels through late 2014.
In the February employment data we see clear signs of strengthening U.S. labor markets as payroll jobs increased by 227,000. December and January payroll job gains were revised upward to 233,000 and 285,000, respectively. Three months solidly above 200,000 would have been a very optimistic forecast six months ago. The household employment survey has shown VERY strong job growth of 428,000 in February, after gaining 847,000 in January. The unemployment rate for February stayed at 8.3 percent. By themselves, the monthly jobs numbers would imply 2012Q1 real GDP growth somewhat higher than the current near two percent forecast. If we keep getting strong jobs numbers it would be reasonable to expect upward revisions to late 2011/early 2012 GDP. But we have to work with the numbers we are given and GDP components still point to subdued growth in the current quarter.
Click here for the complete March 2012 U.S. Economic Update: USEconomicUpdate0312.