Even the most Scrooge-like economic cynic has to be a bit encouraged this week by a succession of cheery reports that portray a recovery heading into the holidays with a measure of momentum.
But employers and economists have a warning – don’t break out the eggnog just yet.
On Tuesday, Associated Industries of Massachusetts announced that its November Business Confidence Index rose 3.5 points to 50.2, extending an up-and-down pattern that has prevailed for most of the year. The Index is up 3.4 from November 2012, when it was driven down by concerns about the fiscal cliff, and up 3.5 from October, when the federal government shut down.
Two days later, the government reported that the U.S. economy expanded at an annual rate of 3.6 percent in the three months ended September 30, well above the 2.8 percent estimate the Commerce Department gave in late October. The figure marks the fastest rate of economic growth since the fourth quarter of 2011 and represents a significant acceleration from the second quarter, when the economy grew at a rate of just 1.3 percent.
The final report came this morning, when the Labor Department said that the U.S. unemployment rate dropped from 7.3 percent to 7 percent in November, reaching a five year-low on the strength of 203,000 new jobs. The economy has now generated a four-month average of 204,000 jobs from August through November, up from 159,000 a month from April through July.
Long-term unemployment and underemployment are also declining.
The consecutive reports leave little doubt that the on-again, off-again four-year economic recovery is broadening. The clearest sign of improvement comes from the rising speculation that the Federal Reserve may later this month scale back the quantitative easing stimulus that jump-started the nation out of the Great Recession.
So why the “Bah, Humbug” from many business owners and economists? It may be the multitude of economic, political and business red flags that remain.
The jump in third-quarter economic growth, for example, was driven in large part by increased accumulation of inventory and a jump in federal spending, neither of which is likely to continue in the fourth quarter. Spending by businesses on equipment and software, meanwhile, declined by 2.7 percent for its first quarterly drop since 2009.
The growth in Gross Domestic Product is “a nice headline number,” Nigel Gault, chief United States economist at IHS Global Insight, told The New York Times, “but it exaggerates the underlying momentum in the economy. Sustainable improvements in growth are not driven by inventories.”
Economists now expect the economy to slow to a 1.6 percent growth rate in the final three months of the year.
Employers also appear to be increasingly exasperated with the persistent budget impasse in Washington. Economist Michael Tyler from Eastern Bank, a member of the AIM Board of Economic Advisors, said that gyrating business confidence is as much political commentary as economic outlook from Bay State Employers.
"The political goings-on in Washington undermine the confidence of many businesspeople; not one survey respondent rated national conditions 'very good'. Some state issues may also be lessening confidence at that level," Tyler said.
Massachusetts may be one of the states where confidence is increasingly at a premium. The state that outperformed the rest of the nation throughout the recession has seen its own jobless rate increase from 6.4 percent to 7.2 percent since the spring as the recession in Europe and the federal budget sequester have landed particularly hard on the commonwealth’s innovation economy.
It all adds up to another “on the one hand,” “on the other hand” year-end for Massachusetts employers. Still, it’s been a good week – we’ll take good news wherever we can find it.