World Economy

US Economy Sending Mixed Signals

US Economy Sending Mixed SignalsUS Economy Sending Mixed Signals

Call it the Snooze Economy. Roughly two months before the presidential election, the US economy has turned both boring and mystifying. It hardly impresses anyone, and yet this plodding performance is probably helping Hillary Clinton by minimizing bad economic news.

More important: The lackluster expansion, if continued for a few more years, would represent an enormous achievement. It would finally erase most of the losses of the Great Recession, Yonhap reported.

Of course, whether it will continue a few more years, or even through the election, are open questions. The truth is that no one knows how strong or weak the economy is. The most reliable economic indicators are not enlightening, because they’re telling opposite stories.

On the one hand, gross domestic product—the economy’s production—suggests that the economy could be on the brink of recession. In the first half of 2016, “real” (inflation-adjusted) GDP rose at an annual rate of about 1%. A recession usually occurs when the GDP declines for two consecutive quarters.

By contrast, job figures depict a booming economy. Payroll jobs have increased at an average of almost 200,000 a month in 2016; the reading for July was 255,000.

The conflict is inescapable. In a commentary, economist Joseph Carson of AllianceBernstein put it this way:

“As a rule, companies add to existing head count when the demand for their goods or services is on the rise and/or backlogs are growing that eventually will require a greater amount of labor input. Yet (recent GDP figures don’t reflect) business conditions that would get companies excited about adding … staff.”

  Role of Internet, Social Media

On paper, these diverging views can be reconciled. One or both of the statistical guideposts may be flawed. It’s possible that GDP doesn’t accurately include—for technical reasons—the contributions made by the internet and social media. If so, then the economy’s output is under-counted, and growth is stronger than the official figures report. Carson takes this position.

By contrast, the job statistic could be what economists call a “lagging indicator.” Employers’ hiring and firing decisions reflect recent experience more than future predictions. Employers don’t start hiring until a recovery is well established; similarly, they keep hiring until a recession hits them in the face. If so, today’s robust hiring could signal false optimism. The weaker GDP figures may better reflect reality.

Other confusions abound. According to the Commerce Department, after-tax corporate profits dropped 5% in 2015. The weakness has continued this year. Stocks are trading near record highs, and The Wall Street Journal recently headlined an analysis, “Stock market turns eerily quiet.”