Time to Put Aside Old Economic Worries?

It turns out that at the time most of those columns were written, the U.S. economy was growing and was reasonably vibrant.  Yet the words express concerns over something or other that could threaten that growth.  All of this simply proves one thing:  we economists may not make as much money as bankers, but we can worry with the best of them.

But all of us who are prone to worry about things are going to have to do a bit of retooling.  The U.S. economy is shifting gears, and the old worries -- about recessions and whether we can grow at all -- will soon fade from the limelight.  The question is, what new worries will take their place?

To be sure, the old worries probably have a bit of life left in them yet.  The recovery from the 2001 recession has been pretty harsh on some individual industries, and the job market is anything but good.  And the rhetoric of the political cycle, kicking off in less

 than six months, will put its customary spin on whatever facts fit the dour stories the campaigns want to tell.

But the data are telling us quite clearly right now that the U.S. economy has moved on from the recession.  Overall output in the economy has risen for seven straight quarters, with the recently announced 2.4 percent growth in Gross Domestic Product (GDP) for the second quarter putting us out of the danger zone of a second downturn.  Consumer spending, which has never faltered, has picked up markedly in recent months.

The long-awaited return of growth in business spending came in the GDP report as well.  Business investment spending posted a 6.9 percent rise in the second quarter, the strongest growth in three years.  Even the battered manufacturing sector has taken its first small steps towards recovery, registering three consecutive months of output growth through June.

When the story of this recession and the subsequent recovery is written, it will doubtless stress the very active role of the Federal Reserve.  But the same swift, decisive moves by the Fed to pump up the economy at the

recession's onset now present us with a fresh worry as the recovery begins to ramp up.  

While the bright light of attention has been shining on its interest rate policies -- whose importance has diminished as long term interest rates have started heading back upwards -- the Federal Reserve has been quietly pursuing a two-fisted expansion in the nation's money supply.  If economic growth were to climb significantly, that much pressure on the economic gas pedal could produce accelerating prices.  And if you think inflation worries are part of a past era, remember that we used to feel that way about unemployment rates, too.

Then there is the matter of deficits.  Budget deficits and trade deficits alike have simply exploded in recent months.  That doesn't mean anything by itself, if they are still not large enough to matter.  But complacency over the speed and direction of these changes would be foolish.

That's hardly all that those of us who track economic performance have to watch out for.  In any event, you should know that even as the recovery takes hold and recession fears subside, some of us will still be worried about what lies behind every tree.

Patrick M. Barkey