Last week, the stock market took another dive. The supercommittee failed. A bond auction flopped in Germany. The U.S. economy didn’t grow as fast in the third quarter as originally thought.
Technically, the recession ended in the United States in the middle of 2009, but what came after doesn’t feel like a recovery.
Unemployment remains stuck at 9 percent. With all this, maybe it’s time to ask the “Apollo 13” question. In the movie, things were so bad mission control stopped trying to catalog what was going wrong. Engineers on the ground wanted to know what was working.
Behind the statistical noise one can glimpse improving strength in two key sectors with broader implications for the whole economy.
One is domestic energy and the other is manufacturing, which is surprising because the two are long associated with perceptions of U.S. decline.
Horizontal drilling and hydraulic fracturing have revolutionized oil and gas production. With little notice from the squabbling pols in Washington, America finds itself sitting atop a bonanza of fossil-fuels energy.
North Dakota alone is pumping out 400,000 barrels of oil a day, compared with 10,000 only eight years ago. America’s oil-import bill has plummeted from 60 percent of domestic consumption to just over 46 percent.
The second bright spot is manufacturing. The big news is that China is losing its cost advantage and some jobs are moving back to the U.S.
Chinese wages are rising, its workers are less productive, raw materials tend to be more expensive and transportation costs are increasing.
This trend is still in the embryonic stage, but a recent report by the Boston Consulting Group peered into the future and concluded that within four years, the cost advantage could shift from China to the United States.
Local economist Chris Kuehl, whose client base includes small to midsize manufacturers employing 50 to 500 workers, recently returned from a Chicago trade show called Fabtech. The event draws machine tool makers and companies in the metal-forming and welding business that do custom work on short notice.
“All of the machine tool makers reported more interest and more sales, even in industries that are struggling,” Kuehl said. “The mood of the show was, ‘We need to get on with it. We’re tired of waiting for some kind of magical political solution.’”
Many of these companies are organized so that the income of the business and the income of the owners is synonymous, which means they’re sensitive to threats of higher taxes and increased regulation.
Higher taxes and regulatory costs would peel away money that could go for new hiring or investment, Kuehl said.
Washington wouldn’t have to do much to boost growth in oil and gas drilling and midsize manufacturing, two vibrant sectors on the upswing. Even so, like the rest of the economy, they’re held back by policy-induced uncertainty, which remains at historically high levels, according to three economists who devised an index to measure it.
“When businesses are uncertain about taxes, health care costs and regulatory initiatives, they adopt a cautious stance,” Scott R. Baker, Nicholas Bloom and Steven J. Davis wrote in a recent piece for Bloomberg News. “Because it is costly to make a hiring or investment mistake, many companies will wait for calmer times to expand. If too many businesses wait, the recovery never takes off.”
That may seem obvious, but the message hasn’t gotten through to the Obama administration. Unfortunately for the economy, the uncertainty fog isn’t likely to lift until after next year’s election.
