The race is on. The U.S. economy is going to get pushed from two forces, in a positive way. The question is whether those stimuli will be able to overcome the list of factors arrayed against a stronger economic recovery.
On the one hand, the release of the iPhone 5 has led to unceasing chatter regarding the stimulus that this may provide to our economy. Millions of orders of the new device, it is estimated, may add up to a measurable jolt to gross domestic product.
On the other hand, the Federal Reserve has just announced QE3 (or a third round of “quantitative easing”). It will purchase $40 billion worth of mortgage-backed securities every month for the foreseeable future. The announcement seems to indicate the Federal Open Market Committee (FOMC) is leaning toward focusing a bit more on employment rather than price stability.
“The Committee is concerned that … economic growth might not be strong enough to generate sustained improvement in labor market conditions” (see the full announcement here: http://1.usa.gov/Pwm8hw). Both of those goals are, of course, statutory objectives of the Federal Reserve.
Whatever one thinks of the Fed monetary policy or of the botched mapping application that Apple is pushing out with iOS6, everybody should hope those stimuli to the economy will work.
The just released unemployment numbers are another reminder that the economy can use any help it can get at this time. As the Bureau of Labor Statistics reports (http://1.usa.gov/9PTRZ1), 26 states experienced increases in unemployment rates, while 12 States and the District of Columbia saw decreases.
Georgia, with 9.2 percent compared to 8.1 percent nationwide, comes in as the state with the eighth highest unemployment rate. Although
the Georgia Department of Labor highlights the positive in its press release (http://bit.ly/PQpyZ8), such as a slight reduction in long-term unemployed and a slow-down in “the pace of new layoffs,” the picture remains bleak.
So, in this election season with no hope of the political gridlock subsiding, the only support the economy can expect will come from consumers, monetary policies or encouraging economic news from abroad.
There are signs, on top of the iPhone 5 craze, that pent-up demand may be showing up in some markets, such as those for housing and cars. That is a positive development on the consumer side.
However, this is countered by new reports from Europe indicating the recession there may be deepening. This is based on a survey of Eurozone businesses that posted its worst result in three years. That suggests a further downward trend in business activity and seems to work against actions by the European Central Bank to fight the crisis.
Whether the Fed’s new round of quantitative easing will be able to serve as an efficient counterweight remains to be seen. Economic research on previous rounds in the U.S., as well as on QE programs abroad, is all over the map in terms of its effectiveness.
For the time being, then, it falls back to embattled consumers to hold up the economy until it can find its strength again.
Although it may just be a blip on GDP, the long lines in front of Apple stores across the country are another reminder that one should never count out the American consumer’s appetite for new gadgets.
Hopefully, that race goes on.
Dr. Michael Reksulak teaches economics and public finance in Georgia Southern University’s College of Business Administration. He may be reached by email at mreksula@georgiasouthern.edu.