Philly Inc: U.S. economy has been too boring to be ‘on the brink’

The European debt crisis and other economic problems may dominate the financial-news networks, but some indicators show the economy is merely lukewarm. Above, a worker sweeps the floor of the New York Stock Exchange. RICHARD DREW / AP
The European debt crisis and other economic problems may dominate the financial-news networks, but some indicators show the economy is merely lukewarm. Above, a worker sweeps the floor of the New York Stock Exchange. RICHARD DREW / AP
Posted: June 07, 2012

I’m calling for a cease-fire on overstating the importance of statistics, meetings, or events that suggest they may have some bearing on the end of the global economy as we know it.

This week, commentators on the financial-news networks were still deconstructing the god-awful U.S. jobs report from Friday, which was weak but a far cry from the bad old job-destruction days of 2008.

Some were viewing Tuesday’s Group of Seven meeting as key to finding the secret passageway that would lead Europe out of the forbidding debt-crisis woods. Others speculated that the Federal Reserve would whip up some new monetary magic at its mid-June meeting.

I’m as guilty as anyone else in fixating on the economic data du jour or the latest star-studded Policypalooza.

But, come on. Does a 275-point (2.2 percent) decline in the Dow Jones industrial average on Friday mean a recession is coming? Does the 10-year Treasury note reaching its lowest yield ever (1.4387 percent last week) mean that investors fear financial Armageddon?

Never say never, but economic forecasters have been putting the global economy "on the brink" of something or other every few months for quite awhile now. Just when I would start to get nervous about excessively high borrowing costs in Spain or Italy, along came an LTRO (long-term refinancing operation) to whisk away the pressure.

With rhetorical extremes once again overwhelming the bland numbers of a weak U.S. economic recovery, it can be useful to consider blended measurements that try to describe current business conditions or future indicators. The widely watched Conference Board’s Leading Economic Index is one. Even though it dipped 0.1 percent in April, the trend remains in "expansionary territory," the research group said.

Less known is another tool called the Aruoba-Diebold-Scotti Business Conditions Index, which you can find on the website of the Federal Reserve Bank of Philadelphia. Although relatively new, the index is calculated as far back as 1960.

It is composed of six pieces of government data: weekly initial claims for unemployment insurance; real personal income (excluding Social Security and other transfer payments); monthly payroll employment; real manufacturing and trade sales; industrial production, and real gross domestic product.

When I first wrote about the index in January 2009, the United States was still in a recession, and the index would plunge as low as -4.0. For comparison, the index didn’t fall below -1.5 in the brief recession of 2001 and sunk to its lowest point of -4.5 in 1974.

We’re in Goldilocks territory (not too hot, not too cold) when the index hovers around zero, where it has been for the last two years. Though the index has spent more time in the negative zone during that time, it hasn’t slumped much below -0.5. Neither has it rallied as high as 0.5 on the plus side of the axis.

In some respects, the two-year line chart plotting the Aruoba-Diebold-Scotti index shows perfectly what this recovery has felt like: The U.S. economy hasn’t gotten very far.

So we’re stuck in a rut. That isn’t as good as being stuck in the Bahamas for an extra day or two on vacation, but far better than being snowed in at the airport at Christmas. We wish things would return to normal, failing to recognize that this has become normal.

Will the Greek election on June 17 really be the catalyst to get the global economy back on track or derail it entirely? I’m not counting on it.

How about the Supreme Court decision later this month regarding the Obama administration’s health-care plan? As important as the ruling will be, it’s not make-or-break for the U.S. economy.

Even the outcome of the Obama-Romney showdown for the Oval Office on Nov. 6 won’t put a job in every home and an iPhone in every hand. In fact, the weeks after the election will be far more important, as Congress addresses the so-called "fiscal cliff" that supposedly awaits us Jan. 1.

Again, the economy won’t collapse the Wednesday after New Year’s if Congress does nothing to change the expiring Bush-era tax cuts or automatic spending cuts. It would just make us Europe, where leaders have spent the last three years trying to convince the world they really are addressing their fiscal and debt challenges.

We won’t be on the brink. Rather, we’ll be sitting at the kitchen table sifting through our checkbooks, monthly bills, and pay stubs, trying to come up with a plan that will pay for all we want.

Contact Mike Armstrong at 215-854-2980 or marmstrong@phillynews.com, or @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.phillyinc.biz.

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