The ongoing U.S. recovery might lull some into forgetting about the risks its lack of momentum presents: The longer the economy just muddles along short of escape velocity, the greater its vulnerability to external shocks.
The latest economic news is telling the same story we’ve heard for years now: The economy is growing and healing, and it would have done even better if it weren’t for some unanticipated development (the weather being the issue this time around). In reality, however, its underlying strength is insufficient to achieve the “liftoff” needed to deliver enough high-quality jobs and the durable expansion the country is capable of (and needs).
Wednesday’s unexpectedly low estimate for output growth in the first quarter of this year — an annualized 0.1 percent, down from 2.6 percent in the prior quarter — was balanced by more concurrent employment and business indicators suggesting that the unseasonably cold winter is giving way to a more active spring and summer.
Meanwhile, Wednesday’s Federal Reserve policy statement, scarcely changed from the prior one, signaled more of the same. The central bank reiterated a policy approach that is essentially on autopilot, with a regular $10 billion reduction in its monthly bond buying and short-term interest rates floored near zero.
None of this is likely to change absent a significant catalyst. Companies have the wallet to materially improve the economic outlook by investing more in facilities, equipment and hiring. They are unlikely to do so without a more comprehensive policy approach, one that goes well beyond what the Fed has been providing markets though its extraordinary bond-buying program.
To enable a stronger and higher-quality recovery, the government needs to do its part. Greater clarity on corporate tax reform and increased infrastructure spending, for example, could improve the environment for business investment and, more generally, help generate the income households need to reduce still-heavy debt loads.