Is America Healing Fast Enough?

Mohamed El-Erian

Six internal factors suggest that the United States’ economy is slowly healing. For some observers, these factors were deemed sufficient to form the critical mass needed to propel the economy into escape velocity.

While I hoped that they might be proven right, the recent stream of weak economic data, including May’s timid net job creation of only 69,000, confirmed my doubts. With this and other elements of a disheartening employment report now suddenly raising widespread worries about the underlying health and durability of America’s recovery, it is important to understand the positive factors and why they are not enough as yet.

For starters, large US multinational companies are as healthy as I have ever seen them. Their cash balances are extremely high, interest payments on debt are low, and principal obligations have been termed out…

Company cash is not the only source of considerable spending power waiting on the sidelines. Rich households also hold significant resources that could be deployed in support of both consumption and investment.

The third and fourth positive factors relate to housing and the labor market. These two long-standing areas of persistent weakness have constituted a major drag on the type of cyclical dynamics that traditionally thrust the US out of its periodic economic slowdowns. But recent data support the view that the housing sector could be in the process of establishing a bottom…

Meanwhile, job growth, while anemic, has nonetheless been consistently positive since September 2010.

Then there is the US Federal Reserve Board. Despite legitimate questions about the effectiveness of its unconventional and ever-experimental policy stance, the Fed appears willing to be even more activist if the economy weakens…

Finally, with the November elections in sight and subsequently out of the way, some believe that politicians in Washington might finally be in a better position to agree to much-needed grand policy bargains…Greater political effectiveness would serve to remove other uncertainties that inhibit certain economic activities.

Each of these six factors suggests actual and potential economic healing. So, not surprisingly, they have provoked excitement in some circles that the US may finally be poised to leave behind the depressing trio of unusually sluggish growth, persistently high unemployment, and high and growing inequality…

The problem is that these factors, both individually and in combination, are unlikely to be a game-changer…

RTFA for these paragraphs fleshed-out. RTFA for the economic and political headwinds applying brakes to the so gradual path our nation has been trudging along. Encumbered by a Congress unwilling to provide more than half-measures, political opponents who would rather the economy fall back into the fires of more unemployment and debt – because they believe they will then be in a better position to win Congress and the White House this November.

Mohamed El-Erian is more polite and a better scholar than I. He offers a reasoned analysis and suggestions for progress.

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