The Economic Recovery: Slack Or Stagnation?

“With U.S. inflation weak, the European economy stumbling and the dollar on the rise, the big question is to what extent Fed officials acknowledge risks to their expectations that the U.S. recovery will continue to strengthen and allow them to raise rates around the middle of next year…A wild card is the possibility that Loretta Mester, head of the Cleveland Fed, dissents against the policy statement…A third dissent (in addition to Charles Plosser and Richard Fisher) would suggest Yellen’s (dovish) support is slipping within the policy-setting committee.”


Meanwhile, retailers are reaching out through Twitter and Facebook to find “passionate” seasonal employees (alt): “While the unemployment rate has come down, much of it is because potential workers remain on the sidelines…Social-media pushes broaden the pool of candidates by attracting workers who aren’t actively looking for jobs.”  Furthermore, “higher workforce participation can help keep wages in check.  ‘Employers are playing chicken…they’re seeing how much slack there is in the labor market before committing to increase wages.’”


Meanwhile, Dr. Ed Yardeni thinks this economic expansion is just getting started: “the average increase following [past] recovery periods through the next peak was 18.6% over an average period of 65 months with a range of 30-104 months.  If we apply these averages to the current cycle, then the [expansion] would peak in 54 months during March 2019 with a substantial gain from here.”  Furthermore, “also looking forward to a long expansion are manufacturing companies, as evidence by soaring new orders for industrial machinery…They’ve been in record-high territory since March.”


Meanwhile, “the slowdown in long run growth in the developed economies…seems to have become a permanent fact of life, rather than a temporary result of the financial crash that will disappear over time.  But the actual path for GDP has fallen well below even the depressed long run equilibrium path since 2009…if we assume that G7 activity was broadly at trend in 2007, and that long run growth since then has been about 2 per cent, then the current level of GDP is still about 8 per cent below its long run level.  This is one indication of how much damage is left to be repaired by improved demand and supply side policy in the future.”