A litany of special factors exposes the recovery’s fragility
RECOVERIES from financial crises are usually subdued, but America’s is starting to look comatose. On May 26th the government said GDP grew by an annualised 1.8% in the first quarter, identical to its preliminary estimate. Economists had hoped for an upward revision. Worse, as signs of weakness accumulate, forecasters have trimmed estimates for the current quarter from around 3.5% they were projecting a month ago to 2.7% or less now.
Last December an agreement between Barack Obama and the Republicans to extend George Bush’s tax cuts and enact new ones led to forecasts of 3% to 4% growth this year. But the new consensus rate of 2.6%, for a recovery now two years old, is barely above America’s long-term potential and scarcely enough to bring unemployment down. To be sure, the post-crisis imperative for banks and households to reduce their debt meant a V-shaped rebound was never on the cards. Even so, this is a terrible performance.