TOPICS > Economy

U.S. Economic Growth Continues at Sluggish Pace

July 27, 2012 at 12:00 AM EDT
The Commerce Department's economic report this week was cautiously positive, with 1.5 percent growth of annual GDP. But with unemployment rates stagnant and consumer spending down, anxiety remains. Judy Woodruff talks to David Wessel of the Wall Street Journal and Mark Zandi of Moody's Analytics on the U.S economic forecast .

JUDY WOODRUFF: The great recession officially ended three years ago, but the latest look at the U.S. economy today suggests a full recovery is still a long way off. The struggle was highlighted in a report from the Commerce Department.

Consumer spending powers the U.S. economy, but Americans weren’t hitting the stores this spring, and when they did, they weren’t spending nearly as much. As a result, economic output, measured as the gross domestic product, rose at an annual rate of just 1.5 percent from April through June. The Commerce Department did raise its estimate of first-quarter growth to 2 percent.

Still, that’s not considered sufficient to encourage hiring and bring down unemployment.

At the White House, spokesman Jay Carney pointed to 12 straight quarters of growth, but acknowledged it’s not enough.

JAY CARNEY, White House press secretary: We obviously, despite the sustained growth, despite the private sector job creation, are still in a position where we’re pulling ourselves out of the very deep hole caused by the great recession. And there is still, of course, a great deal of anxiety in the country about the economy.

JUDY WOODRUFF: Mitt Romney’s campaign charged the new numbers are further proof of a grossly disappointing presidency.

It's not a question of can businesses go out and invest and hire more.  It's a question of willingness, a question of confidence.  And confidence can turn quickly.   Mark Zandi, Chief Economist for Moody's Analytics

Romney’s top economic adviser, Glenn Hubbard, spoke on CNBC.

GLENN HUBBARD, Mitt Romney economic adviser: But I think it’s very disappointing for the future of the economy. It’s about half of what potential growth actually is in the American economy. And recovery should be much more vigorous, even after a financial crisis.

If we keep up at this rate over the next year or two, we will simply never get back to full employment.

JUDY WOODRUFF: Other reports this week also raised concerns. Orders for most durable manufactured goods were down in June, for the third time in four months. And sales of new homes also fell sharply, after rising in May.

On a positive note, first-time jobless claims have been declining this month. But all eyes will be focused closely a week from now, when the July unemployment report is released.

Meanwhile, U.S. investors and policy-makers are keeping a weather eye on Europe. On Thursday, the head of the European Central Bank, Mario Draghi, sought to tamp down talk of a Eurozone breakup.

MARIO DRAGHI, European Central Bank: Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And, believe me, it will be enough.

JUDY WOODRUFF: And, today, German Chancellor Angela Merkel and French President Francois Hollande made their own pledge to preserve the euro.

Those promises by European leaders fueled a rally on Wall Street for a second day. The Dow Jones industrial average gained more than 187 points to close at 13,075. It hasn’t been that high since May. The Nasdaq rose more than 64 points to close at 2,958. For the week, the Dow gained 2 percent; the Nasdaq rose 1 percent.

And for more on all this, we turn to David Wessel, economics editor of The Wall Street Journal and author of “Red Ink: Inside the High-Stakes Politics of the Federal Budget,” and Mark Zandi, chief economist at Moody’s Analytics and author of “Paying the Price: Ending the Great Recession.”

Gentlemen, thank you both. It’s good do have you with us.

DAVID WESSEL, The Wall Street Journal: Good to be here.

JUDY WOODRUFF: So, David Wessel, to you first.

We have heard about what others are saying about these growth numbers. How do you see them?

DAVID WESSEL: Well, I think it’s very distressing that we went from a slow-growth situation to an even slower-growth situation.

And there are so many dark clouds on the horizon that the fear is that the rest of the year will be even worse. When Ben Bernanke, the Fed chairman, testified before Congress the other day, he referred to the economy, the job machine, as stuck in the mud. And that is not a very good place to be.

JUDY WOODRUFF: What about you, Mark Zandi? How do you read all this?

MARK ZANDI, Moody’s Analytics: Well, these are weak numbers.

It’s important to point out, though, the economy is growing. It’s just growing too slowly, too slowly to generate enough jobs to bring down the unemployment rate. And of course, the unemployment rate is over 8 percent. So, that’s very uncomfortable.

And it makes us very vulnerable to anything that can go wrong. And, as David points out, there’s lot of things that could go wrong. Europe, the fiscal issues that face us. So, there are a lot of dark clouds. But we are still growing.

JUDY WOODRUFF: So I hear you saying, Mark Zandi, you’re — you’re — you keep saying we are growing. Do you see something positive here that isn’t so obvious?

MARK ZANDI: Well, a couple things.

The housing market is clearly turning. And, as you know, the housing downturn was ground zero for our economy’s problems. It was the catalyst for the great recession. And it was a significant headwind to the economy. That has clearly turned. And you can see that in today’s GDP numbers.

And I do think housing will become a source of growth not too far in the distant future. But more fundamentally, the thing that is most important is that American businesses have done a marvelous job of restructuring, getting their costs down, improving profit margins. Profit margins have never been wider.

So, I think at this point, it’s a question of — it’s not a question of can businesses go out and invest and hire more. It’s a question of willingness, a question of confidence. And confidence can turn quickly.

JUDY WOODRUFF: So, David Wessel, if those are some of the underlying factors, why then the discouraging overall picture?

DAVID WESSEL: Well, I agree with Mark on the housing front.

But businesses aren’t going to invest unless they think they can sell what they make for the services they provide. Demand in the U.S. has been weak. Confidence — consumer confidence, the numbers came out today, are as low as they have been so far this year. If people don’t spend and foreign economies are slowing down — recession in Europe, slowing economies in Asia — American businesses I think will say why should we invest if we don’t have any customers to sell the goods?

So there is a tension there. And something needs to get them off the dime.

JUDY WOODRUFF: And what would that be?

DAVID WESSEL: I have no idea.

We could have — if Europe got its act together, that would be a plus. When Mario Draghi said he would do whatever it takes, which was a phrase that Ben Bernanke used during our financial crisis, the markets rebounded. If Europe got its act together, I think that would be a big relief, both on businesses and on investors.

And, similarly, in the United States, we have got lots of problems, but some of them are politician-made. This fear that the end of the year is going to be fiscal chaos could go away if the politicians reach some kind of compromise. And that might buoy spirits enough to get people spending and investing again.

JUDY WOODRUFF: So, Mark Zandi, if it takes…


JUDY WOODRUFF: Go ahead, yes.

MARK ZANDI: Yes, Judy, that is the key.

I think it’s confidence and it’s sentiment. And there are two things weighing on the collective psyche, on the psyche of American businesses and households. One is Europe. And that has been a real significant problem. But I will have to say that feels a lot less threatening today than a couple days ago, given what Mario Draghi said.

That was unequivocal. And he made it very clear that he’s going to keep the Eurozone together. And he has the ability and power to do it.

And the second threat is our fiscal issues. And of course that is going to remain with us through the election into early next year. It’s hard to see this economy going anywhere fast over the next six to nine months.

But my sense is that policy-makers will get it together reasonably well and by this time next year, confidence will return and we will be off and running.

JUDY WOODRUFF: I hear Mark Zandi saying that he sees that there could be movement in the right direction in Europe and among policy-makers here.

DAVID WESSEL: Well, there could be, and that would be good.

I think the question in Europe is whether Mario Draghi can deliver on this very forceful rhetoric. The ECB has a lot of power, the European Central Bank, their equivalent of the Federal Reserve. But a lot of this has to do with the intricate politics of Europe.

And have you been a student of Washington politics for a long time. I’m not sure that the politicians are showing me anyways that they are able to come together and cut a deal on the deficit in time to avoid the fiscal cliff.

JUDY WOODRUFF: What makes you think they might, Mark Zandi?

MARK ZANDI: Well, because both parties, Democrats and Republicans, have leverage in this debate.

The Bush era tax cuts are coming to an end under current law. Policy-makers do nothing, everybody’s tax rates are going up. So, that gives leverage to the Democrats.

We have sequestration, meaning budget cuts that are part of the deal that we struck to raise the Treasury debt ceiling last summer. That gives leverage to both Republicans and Democrats, because we’re going to cut the defense budget and the non-defense budget.

And we have the Treasury debt ceiling that has to be increased early next year. And that gives leverage to whomever party doesn’t hold the presidency. So when you have this kind of a situation with both parties having real negotiating power, I think it’s the prescription for actually getting a deal done.

JUDY WOODRUFF: But it sounds like you don’t see it.

DAVID WESSEL: No, I think Mark has analyzed the situation right.

But both in Europe and the United States, we have a lot of people playing the game of chicken. Nobody wants the sequestration. Nobody wants the taxes to go up at year-end. Nobody in Europe wants to blow up the euro in a messy way.

But the question is: can they stumble their way into some compromise if everybody is willing to go right to the edge? And it leaves us vulnerable to something that is not on the horizon, screwing up the economy. The Middle East is not the most stable place in the world. Iran and Syria, we could — who knows what is going to happen to oil.

We are seeing food prices going up because of the drought. With the economy here growing so slowly and Europe in recession, it wouldn’t take much to make things much worse.

JUDY WOODRUFF: All right, well, we hear you both, David Wessel, Mark Zandi. Thank you.

DAVID WESSEL: You’re welcome.

MARK ZANDI: Thank you.