The American Recovery Is Not That Strong

According to economist Christine Rifflart, United States specialist at the OFCE [French Economic Observatory], the U.S. job market is taking risks in its path to continued economic recovery. Still, the excellent health of the housing market could stimulate growth.

Increasing growth, lower deficits, lower unemployment … For many, economic recovery has arrived in the United States. Would you agree?

There are good indicators that have appeared on the economic front. The real estate market has restarted. Housing construction is rising again. This is good news for households that suffered from negative effects of the decline in property prices. This improvement will help their financial situation and stimulate their ability to consume. On the fiscal side, it is also true that the U.S. government has been able to reduce its deficit. The excellent numbers from the first quarter, however, may not be repeated over time. Moreover, these numbers were better than expected because the Congressional Budget Office underestimated its assumptions about revenue. It also did not anticipate the special dividends from Freddie Mac and Fannie Mae, nationalized in 2008, which provided $95 billion to the federal government. These factors have reduced pressure on the congressional debate on the debt ceiling, but they have not resolved the issue. Still, these good numbers are real. The Federal Reserve plans to eventually slow down the pace of share repurchases. But for the moment, it has not changed course; this demonstrates that this recovery is not as strong as we might think.

What is the problem, in your opinion?

The job market is the black mark on the U.S. economy, even though the unemployment rate has dropped 2.5 percentage points from its peak in October 2009. But this decline is partly due to the decline in the active labor force. The employment rate has not changed since the beginning of the recovery, and it is still down 5 percentage points from 2008. The growth in GDP is not strong enough to create jobs — it needs to grow by 3 to 4 percent per year to reach its productive potential. This is a real problem for household consumption. In the first quarter, a growth of 0.8 percent in consumption cost two points to a household’s savings rate, which was already extremely low. With a current rate of about 2.3 percent, households will not benefit in the coming months by continuing to consume and the labor market will likely not recover.

Meanwhile, the financial markets are high … What do you think the attitude of the Federal Reserve will be?

I get the sense that the Fed is constrained in its ability to exit its current accommodating monetary policy. But its balance sheet cannot grow indefinitely. It is currently preparing information, hoping that investors will anticipate and gradually take into account the end of its current monetary policies. But it is also waiting for signs of recovery from the labor and credit markets, which remain sluggish.