I hate to be a grinch today, but it feels like at least a few people are getting a tad overexcited about the health of the U.S. economy.
What makes me say that? Well, take a look at the Huffington Post’s homepage from earlier today.
No, HuffPo. No, it is not.
Don’t get me wrong. Things are looking up. Yesterday, we learned that the U.S. economy grew at a 5 percent annual rate in the third quarter, the fastest pace since 2003. During the spring, it grew at a 4.6 percent clip. The jobs market is moving along pretty briskly. Consumers are feeling more optimistic than they have in years. Families have started borrowing to spend again. Oil prices have crashed, and Saudi Arabia shows no desire whatsoever to prop them back up, meaning we’ll get to keep filling up our cars on the cheap for at least a while. The stock market is having a good run. We’re not in for another round of government austerity. After years of sitting through an economic recovery that felt more like a long case of the flu, these are all reasons to celebrate.
But it’s worth keeping expectations in check. First, please disregard all references to the 1990s. The good times of the Clinton era were the result of giant productivity gains created by the Internet, which led to years of 4 percent growth, rising wages, and low inflation. And as much as the Internet loves to talk about robots, we are not in the middle of another technological renaissance. Rather, we’re shaking off the last ill effects of the recession and housing bust, which is allowing households to shop and companies to hire. The last six months of exceptionally speedy growth are partly just a product of the economy making up for lost time. Remember, GDP shrank at a 2.1 percent rate last winter as freak snow storms blanketed the South and the cold kept us all huddling inside. Look across a full 12 months, and the economy has only grown 2.7 percent—which is fine, but no better than 2012.
What makes this moment of the recovery seem promising is that it looks sustainable. As Matt O’Brien puts it at the Washington Post, the last year of growth hasn’t been the fastest since the recession ended, “but it has been the best.” Namely, it’s being driven by domestic spending, instead of exports (which, given the weakness elsewhere in the world, you can’t always count on), and the housing market hasn’t even fully rebounded yet. I would add that, after years of paying down their debts and buying cars with better gas mileage to deal with fuel prices, consumers are on slightly stronger footing should something unexpected go wrong in the economy, such as another sudden rise in oil prices (you never know).
In short, the U.S. economy is getting hot enough to keep chipping away at the unemployment rate and eventually push up wages a bit—at least until the Federal Reserve feels compelled to raise interest rates. It’s a good place to be. You can call it a comeback. But I wouldn’t hold your breath for a boom.