And we are headed where?

The last few weeks, the bond market has been in a tizzy, as rates on the 10-year US Treasury bond jumped from 1.5% to nearly 3% in a matter of months.   Of course this was because the US economy was roaring forward, the Fed was going to stop QE (or “taper” their buying of long-term credit instruments), and the bad days of the recession were clearly behind us.  Blazing sunshine on the horizon!  Cue the trumpets for fanfare!

Of course, all of this paid little or no attention to actual data.  Which showed what?  The latest revisions (July 31) of US GDP growth put that growth substantially LOWER — at 0.1% for 2012 Q4 and 1.1% for 2013 Q1. That is two consecutive quarters (including Christmas shopping season) of growth at or near “stall speed” when an economy is likely to slow sharply.  Of course, there were cheers that the early estimate for 2013 Q2 was 1.7% (since when do we cheer for growth under 2% at an annualized rate?), because after all 1.7% is higher than 1.1% so things seem headed in the right direction. EXCEPT — that the 2013 Q1 revision of 1.1% growth was revised down from an initial estimate of 2.5%.  So if the 2013 Q2 estimate is also revised downward, we may not be headed in the right direction at all.

So — are there any other signs to light the way?  Here are a few.  First on August 16, the latest consumer confidence readings were DOWN from July (80 in August vs. 85.1 in July).  On August 23, new home sales for July were announced to have fallen by 13.4%, to their lowest level in nine months — and this is a prime summer month for home sales.  Then on August 26, orders for US durable factory goods (the big-ticket items) plummeted by 7.3%, the largest monthly decline since August of last year.

On the employment front, unemployment continues at under 8% only because so many people have dropped out of the labor force. And in the last two months (June and July), many more states reported an increase in their jobless rates than the reverse — Jobless rates dropped in only eight states in July from the previous month and rose in 28, the Labor Department said on Monday, as employment gains sputtered.

So I’m keeping the celebrations on ice for a while longer. Until I see two quarters of growth in excess of 2%, or a drop in unemployment WITH increases in the number of job seekers, I won’t be ready to say that happy days are here.

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About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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