An economic recovery in jeopardy
Gross domestic product grew only 1.8 percent in the first quarter, down from 3.1 percent in last year’s final quarter.
What happened Two years after the official end of the Great Recession, the country’s economic recovery is in danger of stalling, as a flurry of grim reports shows that growth and hiring have slowed to a crawl, housing prices continue to sink, and consumers and businesses are tightening up on spending. Gross domestic product grew only 1.8 percent in the first quarter, down from 3.1 percent in last year’s final quarter, the government announced last week. Consumer spending, meanwhile, grew at an anemic 2.2 percent in the face of a 3.8 percent monthly surge in consumer prices, led by rising costs for food and gasoline. First-time unemployment claims jumped to 424,000, and hiring probably slowed as well, as payroll processor ADP estimated that the private sector generated only 38,000 new jobs in May, instead of the expected 175,000. “This was a dismal report, indicating a significant slowdown in job creation,” said Nicholas Tenev, an economist at Barclays Capital Research.
Falling housing prices continued to act as a major drag on the recovery. Home prices fell 4.2 percent in the first quarter of 2011, following a 3.6 percent drop in the last quarter of 2010. Prices have sunk below their 2009 low point, and home ownership has shrunk to 66.4 percent of the working-age population, down from its 2004 peak of 69.2 percent. “Why buy a property that’s going to fall in price?” asked economist Paul Dales.
What the editorials saidIt’s obvious that the economy still needs “government help,” said The New York Times. Yet Republicans have responded with a so-called “jobs plan” that consists of the fixes they always recommend, “no matter the problem”—lower taxes on the rich, less federal spending, less regulation, and more domestic oil drilling. With Democrats caught up in the fight over the debt ceiling, “no one in Washington is pushing policies to promote stronger growth.”
What the economy needs, said Investor’s Business Daily, is less government meddling, not more of it. Just as Jimmy Carter’s policies led to the “malaise” of the late 1970s, President Obama’s “anti-business policies” and massive federal spending have driven the U.S. into a ditch. Companies aren’t hiring partly because they’re “bracing for a double tsunami of government red tape and massive new costs in the form of Obamacare and sweeping financial-industry changes.”
What the columnists saidTo defeat Obama in 2012, said Rich Lowry in NationalReview.com, Republicans must focus on the sagging economy. The GOP has gotten too caught up in deficit reduction and the Ryan Medicare-reform plan. Ronald Reagan was among our most popular presidents because his No. 1 priority was “economic growth.” The most important question Republicans can ask now is, “Where are the jobs?”
There will be few new jobs until the economy recovers from the bursting of the housing bubble, said Paul Krugman in The New York Times. That will take years, so in the short term, the government should be putting the unemployed to work “doing useful things like repairing roads.” Homeowners facing crushing mortgages also need more federal relief. But with Republicans blocking any new spending, politicians have sunk into a state of “learned helplessness.” Face it—“the recovery has stalled,” said Robert Reich in the Financial Times. A “double-dip recession” is even possible. Republicans appear to be “quietly hoping the economy stays rotten until Election Day,” while Democrats are pretending everything is fine. “The result is as if Washington were on another planet from the rest of the country.”
All the signs are not so grim, said Don Lee and Tom Petruno in the Los Angeles Times. Consumers “are building up their savings at rates not seen in years,” and chipping away at their mountain of mortgage and credit-card debt. Companies are sitting on huge piles of cash. What’s holding the economy back today could power its resurgence a few years down the road. That’s why many economists agree with Phil Orlando of Federated Investors: “There’s a lot more confidence that this is a ‘soft patch,’ and not the start of a double-dip recession.”