The Economy is Mending


There’s No Doubt, The Economy Is Mending
Moody’s Analytics recently released their latest U.S. Macro Forecast, by economist Mark Zandi. Here are two central themes highlighted to support their belief that the economy is truly recovering:
Recovery is in high gear

– Since it began five years ago, real GDP growth has been tepid, averaging just over 2% per year. The pace now looks closer to 3%.

– Behind the pickup is the winding down of fiscal austerity. Government spending cuts shaved a full percentage point from real annual GDP growth beginning in late 2010. With the fiscal situation improving, purse strings are slowly opening again, especially among state and local governments.
– With fiscal austerity fading, the strength of the private sector is kicking the recovery into higher gear.
– The private economy, meanwhile, has been growing close to 3% per year throughout much of the recovery. This was masked by the effects of austerity, but is now becoming evident.
– Consumers, businesses, and the banking system are in shape to handle higher interest rates.
– Assuming the Fed can gracefully normalize monetary conditions, prospects are bright.
– The 12-year old Moody’s Analytics survey of business sentiment has never been stronger.
Heading for full employment

– Payrolls are expanding at a pace that would bring the economy to full employment by late 2016.

– Wage pressures are likely to develop before the economy is at full employment.
– At the current pace, jobs are being added fast enough to eliminate slack in the labor market by late 2016. This includes people unemployed longer than six months, those who left the labor force discouraged, and part-timers who want full-time jobs. While difficult to measure precisely, this slack is estimated at 1.5% to 2% of the labor force.

– Employers are adding well over 200,000 jobs per month, and the growth is spread across nearly all industries, regions and pay scales. Most encouraging is recent strength in construction, manufacturing, and state and local government jobs, most of which fall in the middle of the income spectrum.


Reference Economic Focus

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