Doubts over the strength of the American economy are growing. American payrolls grew by just 115,000 in April, the second successive month they have disappointed. December, January and February saw an average of 252,000 jobs a month created. On the plus side, American house prices, measured by CoreLogic, rose for the first time in eight months in March, while the latest Federal Reserve survey of loan officers shows that banks are loosening lending standards and demand for credit has increased. All told, however, 60% of the data in the past two months have undershot expectations, said Gluskin Sheff’s David Rosenberg.
What the commentators said
It’s too soon to conclude the US is stalling. Other labour market data have been encouraging. The number of unemployed people per vacant job is down to the lowest level since November 2008. The last two months are probably just “payback for unsustainably strong growth earlier this year”, said Economist.com – some payroll gains were brought forward. Other data, while not spectacular, don’t indicate “a sudden drop-off in activity”.
But that could occur later this year, said a Bank of America Merrill Lynch research note. At the end of 2012, stimuli including a payroll tax cut and an investment tax credit expire, and automatic spending cuts kick in. This “fiscal cliff” amounts to a “huge” 4.6% of GDP. Avoiding it will require a “lame-duck government” after the presidential election “to come up with a bipartisan agreement on every tough fiscal issue of the past few years” following a brutal election campaign.
The outcome is “highly uncertain, and uncertainty is the enemy of growth”, continued the note. Companies are likely to postpone spending and hiring until they have a clear picture of the outcome, thus hampering growth in the second half of 2012 too. The hope is that Congress will manage a “last-minute, hairpin turn” to prevent some or all of the squeeze kicking in, said Steven C Johnson of Reuters.com. But given that lawmakers almost forced America into default last year, it may not be wise to count on them.