PF Blog

This Time Is Different

By: Bill Wood, MoldMaking Technology's Economics Editor
21. March 2013

For the past few years, the U.S. economy has exhibited an annoying yearly cyclical pattern. Each of the past three years has started off with promise, but the optimism and growth rates would then taper off as spring and summer progressed. There was always a reasonable explanation (in case your memory needs jogging—a spike in energy prices, the tsunami in Japan, and the bickering in Washington DC about the debt ceiling), but the result was always the same. The stock market would lose momentum, the gains in the employment data would turn sluggish, and confidence levels would drift downward. And to be sure, there are concerns this year about another round of debt ceiling debates combined with the austerity imposed by the recent sequestration.

But this time will be different. There are a couple of factors that will support the recovery this time around that were missing in previous years, and these factors will be enough to promote growth in the second half of this year. The first of these is the burgeoning recovery in the residential construction and real estate sectors. I have been writing about these sectors for several months now, but their importance to the U.S. economic recovery cannot be overstated. These sectors drive the American economy, and we cannot recover without them. Growth in these sectors has been conspicuously absent for the past five years, but they are expanding at robust rates this year.

The other factor is the fact that the historically low interest rates are finally starting to show a noticeable impact on the economy. The Fed has been keeping interest rates low for several years now, but their strategy is at last having the intended effect. The stock market is at an all-time high, likewise corporate profit levels. Anybody who is invested in bonds or has funds sitting in the bank is losing money because the rate of inflation is higher than their rate of return. Low interest rates typically stimulate economic activity. It has taken longer than usual, but this is becoming the case once again.

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