New York Times (NYT) Columnist Paul Krugman, among others, has pointed out that it’s way too early to think in terms of ending fiscal/stimulus. The economic expansion has barely begun — let alone achieved self-sustaining status — and the premature withdrawal of stimulus increases the likelihood of a double-dip recession, Krugman said.
Further, the view from here argues that investors need to keep in mind that U.S. economic fundamentals have not placed the economy on a steady-growth track — not yet. What we have is one quarter (Q3 2009) of GDP growth. That’s it.
Moreover, those who argue that stimulus, fiscal or monetary, should be withdrawn should evaluate the lack of an appearance (so far) of the historical drivers of U.S. GDP growth. Consumer spending is likely to underperform amid a continuation of the ‘frugal consumer’ era. Business investment is only beginning to recover, and is hardly at a level that triggers robust GDP growth. And the impact of the U.S. housing sector on GDP? Next factor, please.
That leaves the employment situation; specifically — job growth. Sustained job growth can increase organic demand, but while net job losses have declined (thanks in part to fiscal/monetary stimulus), the reasonable analysis argues that the job market has only started to turn. The U.S. economy lost only 11,000 jobs in November 2009; the Bloomberg News economists consensus for December 2009 forecasts no change in jobs in December 2009 (the December 2009 job report will be released by the U.S. Labor Department Friday, January 8 at 8:30 a.m. EST).
In sum, the U.S. currently has a mild economic expansion with not a whole lot of organic demand behind it. Also keep in mind that the U.S unemployment rate is 10%. And the prospects for a sudden surge in the economy to 300,000-per-month Clinton administration-era job gains per month? No one is forecasting that. And yet, a faction in the United States is arguing that the U.S. economy is strong enough to remove stimulus? These arguments sound dangerously like those voiced in 1937-1938, during which the U.S. prematurely balanced the federal budget in 1938, and in the process hurt the economy, reversed the unemployment trend (unemployment had dropped up until then) and lengthened the Great Depression: it was the great mistake of 1937.
Hopefully, the nation will keep current fiscal/monetary stimulus in place — you could even argue that more stimulus is needed now, not less — and not repeat the mistake of 1937.
Once the U.S. economy has achieved sustainable growth status with job growth of 150,000-200,000 jobs per month for 3-4 months, one can think in terms of removing stimulus. But we’re not close to that level of economic performance yet.
Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy