Economists Say U.S. Expansion Nearing Self-Sustaining Status

Before you go, we thought you'd like these...
Before you go close icon
job seekerLost amid the blizzard of bad fiscal news in Greece, and the blizzard of just plain snow (but lots of it) in Washington, was a bit of good news that sort of slipped under the radar this week.

And, ironically, it may represent the best news on the U.S. economy since the recession started more than two years ago: the U.S. economy is now expected to grow 3% this year and next -- more than expected a month ago, according to the median estimate of 62 economists polled this month by Bloomberg News.

Equally important, those same economists now expect the U.S. unemployment rate to fall to 9.5% by the end of 2010.The significance of this news? If the economists surveyed by Bloomberg are accurate about a 3% GDP growth, that would lend credence to Obama administration Council of Economic Advisors Chair Christina Romer's forecast that the U.S. economy will average monthly job growth of 116,000 jobs per month, or about 1.4 million jobs created in 2010.

Further, if the 1.4 million job forecast pans out, this will be, arguably, the best economic news Americans have heard in a long time -- and, even though the year is young, it may represent the biggest business news story of the year. The reason? An increase of 1.4 million jobs should be large enough to generate enough demand for the U.S. economic expansion to feed on itself -- or what economists call achieving self-sustaining status. That's when an increase in jobs leads to an increase in demand (in the form of consumers' making purchases and businesses investing in new machinery/equipment), and that leads to companies increasing production to replace those goods, which leads to additional hiring (and a further reduction in the unemployment rate), which leads to another increase in demand and consumer spending, which both strengthens and lengthens the recovery, and so on.

There. Got all that? If you didn't, basically, in a nutshell, the U.S economic expansion is on the verge of being able to sustain itself without fiscal stimulus. We're on the cusp of what economists also call a virtuous cycle.

Job Hunt Should Improve

For those looking for work, it means you'll encounter a larger and larger pool of available jobs, instead of a shrinking pool -- improving the chances that you'll secure that job you prefer and deserve. Further, in all probability, the U.S. unemployment rate has peaked. Say that three times and see if it doesn't make you smile.

For investors, it means U.S. corporations, in general already lean and highly productive, are going to see their revenue and earnings grow even more -- and that's bullish for the U.S stock market.

Now a couple qualifiers that investors should keep in mind. (Also known as "why you shouldn't sing kumbaya yet.")

First, normally U.S. GDP growth would be much stronger coming out of a recession than even the 3% GDP growth the Bloomberg survey economists have predicted. However, as most investors know, very little has been "normal" about this recession -- it was accompanied by the financial crisis, credit markets were damaged, they're still in the process of healing and typically after a financial crisis the GDP growth rate is lower than what it would be if credit markets were 100% healthy.

Also, unexpected incidents/events, man-made or natural, are capable of disrupting the apple cart, and undermining the recovery. The sovereign debt crisis, if the eurozone's leaders can't successfully solve it or if it surfaces in other nations like Spain, Portugal or Ireland, is one potential storm. Sudden, sustained increases in the price of oil above $100 per barrel, due to production disruptions or international events, is another. Either of the above could shave points off U.S. GDP growth and jeopardize the nation's return to a self-sustaining expansion.

Finally, investors need to keep in mind the journey ahead. The recession resulted in more than 8.4 million jobs lost, so it's going to take three, four, or five years just to bring the unemployment rate down to tolerable levels. Without question, the United States faces a long journey back to full employment.

That said, you have to start somewhere, and more than a few economists now believe, after the longest and worst recession since the Great Depression, the U.S. economy is on the cusp of a self-sustaining expansion. And that's pretty good news, indeed, for such a snowy week.

It practically feels like the arrival of spring.

Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
Read Full Story

Markets

S&P 500 2,241.35 29.12 1.32%
DJIA 19,549.62 297.84 1.55%
NASDAQ 5,393.76 60.76 1.14%
DAX 10,986.69 211.37 1.96%
HANG SENG 22,929.60 128.68 0.56%
NIKKEI 225 18,690.25 193.56 1.05%
USD (per EUR) 1.08 0.00 0.12%
USD (per CHF) 1.01 0.00 -0.05%
JPY (per USD) 113.55 -0.16 -0.14%
GBP (per USD) 1.26 0.00 0.18%

From Our Partners