The Federal Reserve Board released its Beige Book compilation of economic data on Thursday. The document's bland title serves as an apt metaphor for the current state of the U.S. economy.
The only upbeat news is that there are significant signs of recovery from the earthquake and tsunami in Japan, which helps U.S. manufacturers dependent on Japanese parts. Several of the Federal Reserve's 12 districts showed a higher production in automobile- and transportation-related equipment, including Atlanta, Chicago and Cleveland, suggesting the supply disruptions that followed those calamities are finally being resolved. Business and consumer spending also are up, modestly.
The housing market, however, remains in the doldrums, other than the small increases reported in Philadelphia and two other regions. Home sales and loan activity are flat. Chicago listed a tightening of credit conditions, and New York reported weaker activity in the securities industry. Banks are still struggling with the burden of the stiff regulations imposed by the Dodd-Frank Act. Returning to a free market in housing, as opposed to the Fannie Mae and Freddie Mac model of sticking overburdened taxpayers with all the risk, is the only way the housing sector is going to recover.
More broadly, the rest of the economy is suffering from a lack of jobs, and the outlook isn't promising. As the Beige Book reports, "Many Districts noted restraint in hiring and capital spending plans." Business owners are acting rationally. They have noted the recent declines in consumer confidence and are reluctant to build up inventories - even ahead of the all-important holiday retail season - because they think products will remain unsold on their shelves. That doesn't bode well for the last quarter of this year. Even the most optimistic forecasts see a mere 2 percent growth in gross domestic product for the remainder of the year. That would be an improvement showing we avoided a double-dip recession, but it's hardly the robust growth this country needs to regain the ground it has lost over the past several years of stagnation.
The 9.1 percent unemployment hasn't budged. At the same time, employers in several major districts - including Cleveland, Richmond, Atlanta, Chicago and Kansas City - noted that employers in some sectors were having difficulty finding employees with appropriate skills. This signals a deeper underlying problem that feel-good legislation like President Obama's Jobs Act fails to address: the issue of structural unemployment. Subsidizing the public sector, as Mr. Obama proposes to do, isn't a solution, as it does nothing to address the core problem. Businesses need to operate in an environment where investment in capital and hiring workers is rewarded. Likewise, opportunities need to exist for individuals, who otherwise won't go through the training to acquire the needed skills.
Unless America gets off this gloomy path, we'll end up like Europe with an underclass of the permanently unemployed.
Nita Ghei is a contributing Opinion writer for The Washington Times.
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