America Is Recovering

America’s government is optimistic and expects an acceleration of growth this year. President Barack Obama’s economists are estimating 3.1 percent or a little more; in 2015 it’s supposed to climb 3.4 percent. That is significantly more than the 1.9 percent of last year and a little more confident than bank economists’ expectations. However, that does not necessarily mean that the government’s optimism is exaggerated. If you leave out the unpredictable 2009 recession year, Obama’s administration has been pretty accurate in its yearly growth predictions for three out of four years.

However, the economic situation this year is more uncertain than usual. The very cold winter has the economy in its grip. Many economic indicators have been disappointing, from car sales to consumer and business surveys to the real estate market. The most recent news from the job market, where 175,000 new jobs were created in February despite widespread icy temperatures, is surprisingly decent. That has significantly helped worries that the slowdown could be due to more than just the winter, but the uncertainty is still there. With the usual delay of statistical data, it won’t be clear until April or May if the cold winter was only a small dip in the economic recovery that will bring a pleasantly opposing movement in its wake.

Shaking off the Crisis

Several basic factors explain the need for confidence in the medium term. First and foremost, the financial situation of private households five years after the crisis has improved significantly. At the end of 2013, the net financial assets of private households reached a record $80.7 billion, 5 percent more than the high in the year before the recession. Household debt averages out to only 109 percent of usable income. In the year of the crisis, this was more than 130 percent. These numbers are averages and belie large differences between households, but they do prove that the United States has come a long way in economic recovery since the crisis. That should strengthen consumption in the medium term, especially if the value real estate continues to rise and unemployment sinks. Consumption has grown moderately, but robustly in the last months.

The chance for a self-propelled upswing relies on the sluggish post-crisis recovery proceeding abnormally fast. Consumption and house investment, which usually recover quickly after economic slumps, came in this instance unusually late due to the burst housing bubble. They now have room to grow. Investment in business, on the other hand, grew unusually fast after the crisis, also due to the accelerated depreciation. Then it slowed down. With increasing capacity utilization and industry production it can now begin to grow again.

Rising Carbon Dioxide Emissions

Temporarily and in the short term, but substantial to a degree, is the danger of a backlash from the fact that businesses in the second half of 2013 padded their inventories far more than average. In the medium term, it helps businesses that the Obama administration, despite its preference for environmental regulations and its attempts to reduce carbon dioxide emissions, has not hindered that speedy upswing in the demand for shale gas. It does not only directly create jobs, it also helps business and investments through lower energy prices.

The government is celebrating fiscal policy as a positive factor in economic activity. That is only partly the case. It is good that fiscal concern and worry about the short term ability of the United States to pay off its debts has been swept out of the way until the year 2015, now that Congress has reached an agreement and raised the debt ceiling. Because the Republicans caved slightly, the price for this is slower deficit reduction. Not until 2018 should the deficit sink from 4.1 percent to less than 2 percent. That’s not very ambitious.

The United States, with its robustly growing economy, is becoming more demanding internationally. Pressure will increase on countries with surplus foreign trade, like Germany. Domestically, positive economic prospects lead Obama to get stuck more often on demands like higher minimum wage. This will hinder job market recovery instead of generating more income and demand, because the heavy recession and slow recovery left a large number of long term unemployed. In monetary policy, the cessation of bond-buying through the Fed seems to be sealed. If the American economy follows forecasts, the debate over the first raises in interest rates should start in the fall at the latest.