, albeit slowly, in the past twoquarters
and almost certainly will accelerate in the current quarter because of booming exports; industrial production has been positive, as have real income and whole-retail trade
. Employment has fallen slightly, but bynowhere near as much as in the mildest of past recessions. Reliable high-frequency indicators, such as the monthly purchasingmanagers' surveys, point to continuation of modest growth.
Most importantly, consumer spending has remainedrobust
. American consumers, far from cutting back to bare essentials as was expected by bearish commentators after the credit crunch, are actually increasing their spending. The evidence of this, contained in the strong retail sales figures for May published last Thursday, was by far the most important economic news of the past few weeks.Yet these figures received almost no media coverage and little market attention. Yet May's retail sales figures revealed a picture completely at odds with conventional wisdomabout the US economy. Despite the jump in energy prices and the related collapse in measures of consumer confidence, retail sales rose by 1.1 per cent on the month, thestrongest gain since last November. Sales adjusted for inflation and excluding food and energy also showed gains much stronger than expected. Also April's sales, initiallythought to have fallen, were revised upwards to show a significant gain - and the two-month average of these volatile figures suggested that growth in the US consumer economy is now similar to the rate a year ago, before the sub-prime crisis and credit crunch. This conclusion is not based on one set of good retail sales statistics, but includesstronger-than-expected recent figures on industry sales, stocks, imports, exports, purchasing managers' surveys and even home sales. But in saying this, am I not forgettingabout the dreadful employment figures published last Friday, which triggered the collapse of the dollar I mentioned at the start? Not at all. Despite the shock-horror headlinesabout a terrifying leap in unemployment from 5 to 5.5 per cent, employment figures for May were quite strong and fully consistent with the message of economic acceleration.Rates of unemployment are irrelevant in timing the economic cycle, since they are a lagging indicator, turning some six to nine months after the economy as a whole.Meanwhile, the job creation figures, which do reflect current economic conditions, showed a modest decline of 49,000 in payroll employment, exactly in line with expectationsand consistent with the economy growing at about 1.5 per cent, just slightly below the 2 per cent trend rate of productivity growth. Of course May's strong retail sales were duein part to the tax rebates of $600 to $2,000 per household from the US Treasury from last month. Many analysts, therefore, dismissed the gains as misleading. But this was thewrong response. The role of tax cuts in boosting consumer spending is a reason for optimism, not scepticism, about the economic outlook. The tax rebates were designed to boost consumer spending and that is why we have always expected (in line with the Fed and the US Treasury) to see economic recovery from this summer. Retail sales figureshave now shown that the US tax cuts are working as planned. They will temporarily boost consumption - and by the time that this temporary tax boost runs out aroundChristmas, the US economy will be starting to enjoy the benefits of lower interest rates, operating with a lag of 12 to 18 months. In much of this discussion, my optimism on USeconomic statistics has been qualified by the weasel words "so far". But this can change. Until this month, sceptics could predict that trouble lay ahead for America onceconsumers finally realised that their credit had run out. But the strong consumer response to the $110 billion tax rebate programme changes the balance of this argument.
With the rebates flowing into bank accounts and boosting real disposable incomes, the period of greatestrisk for the US economy has passed
. For the next two quarters, disposable incomes will rise at an annualised rate of 8 per cent or more and, given the normal lags between money appearing in bank accounts and flowing into shop tills, the tax rebates willguarantee decently strong retail spending between now and Christmas - maybe a temporary consumer boom. I
f there weregoing to be a US recession in response to the credit crisis, it would have started by now. So let me stick my neck out and say without qualification - the US economy is out of the woods.3