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The curse of ‘moderate’

By Mark Hamrick · Bankrate.com
Monday, September 9, 2013
Posted: 5 am ET

As economic recoveries go, what most Americans have been experiencing has been as exciting as a hospital diet. This is the world of bland, where moderate growth plods along. If you want really exciting, you'll need to wander far off America's shores. But spicy economies can be notoriously volatile, providing cases of financial indigestion in recent months.

Recalling the experience of the 2007-2008 financial crisis, we don't want that kind of exciting for, well, maybe forever. Maybe we should just be happy with bland and moderate for a while. That might be a tall order for the unemployed, or people who would like to have a better-paying job.

Economic releases

  • The Federal Reserve reports on consumer credit for July: 3 p.m. Monday (all times Eastern)
  • The Commerce Department reports on retail sales for August: 8:30 a.m. Friday
  • The Labor Department reports on the producer price index for August: 8:30 a.m. Friday

Jalopies drive retail sales

The August jobs report showed that the job market is expanding with less momentum than earlier this year. The unemployment rate dropped to 7.3 percent, but payrolls growth over the previous three months has averaged 148,000.

While wage gains have been limited, consumers appear to have been hanging in there. Car sales, as reported by manufacturers for August, were the best since May 2007.

Auto analyst Jeremy Acevedo with Edmunds.com says part of the reason is that "cars right now are some of the oldest on the road that we have ever seen." Average age: around 11 years. He says the housing recovery is also helping to power sales of new trucks.

Want to work at the checkout counter?

Overall, retail sales have been less than stellar for months, despite bright spots in housing and the auto sector. For example, last year's holiday shopping season advance fell short of modest expectations. There's not much reason to believe that the outlook for this year's season will be much better. In the August employment report, some 44,000 of the new jobs added were in the retail sector.

Lynn Reaser, chief economist for Point Loma Nazarene University in San Diego, notes: "Retail sales had edged up only slightly in July as big ticket items, including cars, furniture and electronics faltered." More recently, Reaser says, "August answered with a consumers snapping up new cars and auto manufacturers ramping up production of the most popular models."

The mix of economic crosswinds isn't producing enough to propel consumers much more. As Reaser puts it, "While stock prices stumbled in August -- and wage gains remained modest -- rising home prices, further job gains, and low inflation have kept the American consumer spending at least at a moderate pace."

Raises for workers in short supply

Home prices are on the rise and the stock market has been rallying this year. But with wages being held in check, the curse of moderate growth appears to be around for a while. In Chicago, David Nice, associate economist for Mesirow Financial says, "the numbers that have come in for wages have been flat for months and I don't really see that changing just yet. I mean the stagnation that you see in wages is just kind of putting a damper on people's disposable income and how much they could actually spend." Nice says he senses that the economy is "fighting for direction right now."

Growth, as measured by gross domestic product, has been estimated to have expanded at an annual pace of 2.5 percent. Many economists think it has since slipped to around 2 percent in the current quarter.

What's next for the Fed?

The Federal Reserve's next policy-setting meeting is slated for Sept. 17 and 18. There's been great debate, and volatility in financial markets, surrounding when the central bank will begin to pull back on economic stimulus. At issue is so-called tapering, or a reduction in the pace of $85 billion each month in asset purchases. This was another in the series of unusual measures taken by the Fed aimed at putting the economy on a better growth path with a target of 6.5 percent unemployment. Experts generally agree it isn't a question of whether the Fed tapers, but when it pulls back. Eventually, the Fed is also expected to raise short-term interest rates, but that isn't expected before 2015.

As the Fed's eventual decision to taper has been anticipated, interest rates, such as those involving mortgages have already risen. Economist Nice says he believes "rates have plateaued," at least for now.

This week in business history

With so much focus on the auto sector this week, we note something that happened Sept. 14, 1899. It is the date of the first known fatality in the Americas involving an automobile. The victim was Henry H. Bliss, who is remembered not for how he lived, but how he died. Bliss hopped off a New York City streetcar near Central Bank West and was hit by a taxi. According to The New York Times, Bliss was knocked to the ground and the car crushed him. Fortunately, most pedestrians would develop a better sense of traffic during the 20th century as automobiles proliferated.

Follow me on Twitter @hamrickisms.

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