Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for the ‘American economy’ Category

The economy: Waiting for the chop

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The economy has survived austerity thus far this year thanks to housing, but the “sequester” could change that

Mar 2nd 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WHEN Barack Obama and the Republicans in Congress agreed on January 1st to let a payroll tax cut expire and tax rates rise on the rich, they rolled the dice with the economy. They in effect bet that America’s recovery was solid enough to withstand higher taxes and spending cuts, including a “sequester” due to take effect on March 1st. At 1.9% of gross domestic product, that is a contraction second only to that of Greece among rich countries this year (see chart 1).

At America’s biggest retailer, it looked at first like the gamble had not paid off. “Where are all the customers? And where’s their money?” one executive at Walmart said in an e-mail dated February 1st obtained by Bloomberg News. February sales to date “are a total disaster,” another wrote on February 12th.

But the company painted a less dire picture on February 21st, when it reported its earnings. While sales had indeed flattened out, the culprit was not, it appeared, tax increases, but delayed tax refunds (also a result of the January 1st legislation). Customers last year cashed $4 billion worth of income tax refunds at Walmart’s shops, but so far this year had cashed only about $1.7 billion. Presumably when the refunds come through in March, so will the usual spending they bring. Read the rest of this entry »

Written by gregip

February 28, 2013 at 12:03 pm

Barack Obama’s economic record: End-of-term report

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The president’s record is better than the woes of America’s economy suggests

Sep 1st 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] NOT since 1933 had an American president taken the oath of office in an economic climate as grim as it was when Barack Obama put his left hand on the Bible in January 2009. The banking system was near collapse, two big car manufacturers were sliding towards bankruptcy; and employment, the housing market and output were spiralling down.

Hemmed in by political constraints, presidents typically have only the slightest influence over the American economy. Mr Obama, like Franklin Roosevelt in 1933 and Ronald Reagan in 1981, would be an exception. Not only would his decisions be crucial to the recovery, but he also had a chance to shape the economy that emerged. As one adviser said, the crisis should not be allowed to go to waste.

Did Mr Obama blow it? Nearly four years later, voters seem to think so: approval of his economic management is near rock-bottom, the single-biggest obstacle to his re-election. This, however, is not a fair judgment on Mr Obama’s record, which must consider not just the results but the decisions he took, the alternatives on offer and the obstacles in his way. Seen in that light, the report card is better. His handling of the crisis and recession were impressive. Unfortunately, his efforts to reshape the economy have often misfired. And America’s public finances are in a dire state. Read the rest of this entry »

Written by gregip

August 31, 2012 at 12:51 pm

The housing market: Pulling its weight at last

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Investors help turn the housing market into a source of growth

Aug 4th 2012 | PHOENIX, ARIZONA | from the print edition

[Greg Ip]

STEVE SCHMITZ surveys the street outside his newly bought four-bedroom house and enthuses over what he sees. Stucco houses with tidy gardens, just like his, line the road. A minivan is parked outside one, an SUV sits in the driveway of another. An elementary school is just a few blocks away. It is as idyllic as a new homeowner could wish in this western suburb of Phoenix.

Mr Schmitz, however, is no ordinary homeowner. The house is just one of more than 1,000 which his company, American Residential Properties, has acquired since 2008 in Phoenix, Las Vegas and California. ARP bought the house for roughly half its peak selling price of more than $300,000 in a “short sale”: in essence, a sale forced on the owner to avoid foreclosure. After carpet cleaning and repainting it was quickly rented for $1,300 a month, about half what the original owner had been paying for a mortgage.

Mr Schmitz, however, is no ordinary homeowner. The house is just one of more than 1,000 which his company, American Residential Properties, has acquired since 2008 in Phoenix, Las Vegas and California. ARP bought the house for roughly half its peak selling price of more than $300,000 in a “short sale”: in essence, a sale forced on the owner to avoid foreclosure. After carpet cleaning and repainting it was quickly rented for $1,300 a month, about half what the original owner had been paying for a mortgage.

Investors like Mr Schmitz are an important part of why America’s long-suffering housing market may at last have turned the corner. Read the rest of this entry »

Written by gregip

August 2, 2012 at 4:13 pm

The size of the state: A big beast to tackle

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Cutting spending down to size will be hard for a President Romney; boosting it any further will be hard for a re-elected President Obama

Jul 28th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip]  TO SAY that public schools, roads and bridges helped make America rich would ordinarily arouse no more controversy than to say that a dog is a man’s best friend. The exception is when Barack Obama clumsily tries to make the point during a presidential race, in an instant distilling the campaign down to a single question: what is the role of government?

On a campaign stop at a fire station in Virginia on July 13th, Mr Obama said: “If you were successful, somebody along the line gave you some help…Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen.”

In the days since then, Republicans have taken that last sentence and turned it into an attack ad to bolster their message that Mr Obama likes government more than business. It reveals “an ideology that somehow says it’s the collective and government that we need to celebrate,” declared Mitt Romney, the challenger. And the row goes on. New T-shirts are being printed, fresh denunciations penned.

At first glance, Mr Obama’s critics have ample ammunition. Federal spending during his term was the highest relative to GDP since the end of the second world war. A record number of the population now gets federal entitlements such as Medicaid and food stamps. The federal government backs 90% of new mortgages, up from half before the financial crisis, as well as a growing share of student loans. Staffing levels at regulatory agencies have ballooned, and they churn out more and costlier rules than their predecessors.

Read the rest of this entry »

Written by gregip

July 31, 2012 at 4:10 pm

America’s economy: Points of light

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Amid the gloom there are unexpected signs of boom, especially in energy

Jul 14th 2012 | HAHNVILLE, LOUISIANA, SHANGHAI AND WASHINGTON, DC | from the print edition

[Greg Ip]

THE half-finished Shanghai Tower is a hulking concrete wedding cake, rising out of a dusty building site in the central business district. But when it is finished in 2015 the glittering spiral tower will be China’s tallest building and one of its most striking, with two exterior glass skins enclosing nine different climate zones. It will, the developer boasts, “symbolise the dynamic emergence of modern China.”

Less obviously, it also symbolises modern America. The tower owes its design to an American firm of architects, Gensler. Its structural engineer is another American firm, Thornton Tomasetti. Indeed, American companies have left their mark all over Shanghai’s skyline. Ray Yu, a local supervisor for Thornton Tomasetti, points to the nearby Jin Mao tower and then to the Shanghai World Financial Centre across the street, rattling off the names of their architects and structural engineers. All are American.

China has no shortage of architects and engineers; foreign firms are required to partner them. But they have less experience with super-size high-rise towers, says Mr Yu: “We solve problems for them.” China also solves problems for the Americans. Two decades ago, foreign fees were just a sliver of Thornton Tomasetti’s business; now they make up 15-20%, and are dominated by Asia, a vital source of growth at a time when the market at home and in Europe is moribund.

This is a microcosm of a much larger picture. Read the rest of this entry »

Written by gregip

July 12, 2012 at 3:37 pm

The American economy: Comeback kid

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America’s economy is once again reinventing itself

Jul 14th 2012 | from the print edition

[Greg Ip]

ALMOST the only thing on which Barack Obama and Mitt Romney, his Republican challenger, agree is that the economy is in a bad way. Unemployment is stuck above 8% and growth probably slipped below an annualised 2% in the first half of this year. Ahead lie the threats of a euro break-up, a slowdown in China and the “fiscal cliff”, a withering year-end combination of tax increases and spending cuts. Mr Obama and Mr Romney disagree only on what would make things worse: re-electing a left-wing president who has regulated to death a private sector he neither likes nor understands; or swapping him for a rapacious private-equity man bent on enriching the very people who caused the mess.

America’s economy is certainly in a tender state. But the pessimism of the presidential slanging-match misses something vital. Led by its inventive private sector, the economy is remaking itself (see article). Old weaknesses are being remedied and new strengths discovered, with an agility that has much to teach stagnant Europe and dirigiste Asia. Read the rest of this entry »

Written by gregip

July 12, 2012 at 3:35 pm

The economy: Upswing

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Many states key to November’s election are doing better; whether the president can exploit that is another matter

Jun 2nd 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] ON MAY 24th Barack Obama launched a blistering attack on Mitt Romney’s business background from the state fairgrounds in Iowa. A week later Mr Romney returned the favour from a furniture warehouse in Las Vegas, Nevada. The choice of venues was hardly random. Both are in “swing” states that will help determine the outcome of this November’s election. With the economy at the top of voters’ concerns, how the recovery is seen to be faring in such states could have an outsize influence on the result.

Superficially, Iowa and Nevada are opposites. Iowa’s big manufacturing sector lost one in eight of its jobs between 2007 and 2010, yet the state had no housing bubble and its unemployment rate remains among the lowest in the country. Tourism-dependent Nevada was the state worst hit by the housing bust and still struggles under the country’s highest jobless rate.

But together with 11 other states usually considered electoral toss-ups (see table), they are, by some metrics, doing better than the nation is. Read the rest of this entry »

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May 31, 2012 at 1:38 pm

Free Exchange: Humbler Horizons

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America’s economy is growing at an unimpressive rate. It may not be able to go much faster

May 26th 2012 | from the print edition

[Greg Ip] WHEN the American economy emerged from recession three years ago, forecasters fell into two broad camps. Optimists reckoned brisk growth would quickly return the economy to its long-term potential level of output, the maximum sustainable GDP that could be achieved with the capital and labour on hand. That would pull down unemployment and prop up inflation. Pessimists, however, predicted sluggish growth, persistently high unemployment and inflation that would slip ever lower as a result of unused capacity in the economy.

What has actually happened since then has been a mixture of the two. Unemployment and inflation have moved in the directions that optimists expected. Since peaking at 10% in late 2009, the jobless rate has now fallen by nearly two percentage points. Core inflation, which excludes food and energy, dipped below 1% in 2010 but is now above 2%. Yet economic growth has averaged 2.5%, a rate more typical of the economy at full employment rather than when recovering from a deep bust.

Economists advance several explanations for this dichotomy. The drop in unemployment may simply be mechanical, a snapback after employers fired workers too indiscriminately during the recession. Inflation has been underpinned by the indirect effects of higher commodity prices, rising rents and the influence of stable inflation expectations on prices and wages. Optimists say that GDP may be revised up later.

But there is another, more troubling possibility: the crisis may have permanently dented America’s productive capacity. If so, the “output gap” between the economy’s current level of production and its potential level is much smaller than expected. Read the rest of this entry »

Written by gregip

May 25, 2012 at 9:14 pm

The American economy: Unmired at last

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America’s recovery is neither robust nor dramatic. But it is real

Mar 17th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] SINCE Florida’s property market collapsed and its economy tanked, Hillsborough County has endured almost nonstop austerity. In the past five years the government of the county, halfway up the state’s Gulf coast, has eliminated a quarter of its 6,000 positions through attrition and lay-offs. It has scaled back after-school child care. Workers’ pay has been frozen for three years.

But the fiscal year that begins in October holds the prospect of relief. Property-tax revenue is declining more slowly. Tourism-related taxes have stabilised. Sales-tax revenue is actually up. There is still a deficit to be eliminated, but it is a third of the size it was a year ago; the county thinks it will need no lay-offs next year. Things aren’t getting better, says Tom Fesler, the county’s budget director. “It’s more a function of just not getting worse.”

Such faint praise is not as damning as it seems; there has been an awful lot of worse in the past few years. America’s recovery may have officially begun in mid-2009, but it has bogged down repeatedly since. That has in part been due to circumstances beyond American control, such as rising oil prices and Europe’s debt crisis. But it has also been due to the hangover of the recession: consumers have been shedding debt, lenders have been reluctant, housing markets have been moribund, and state and local governments like Mr Fesler’s have been cutting budgets in the face of prohibitions on deficits.

Some of those impediments have now gone away. Read the rest of this entry »

Written by gregip

March 15, 2012 at 1:40 pm

Jobs and the economy: A game of two halves

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Employment springs to life; will it fade again?

[Greg Ip] Feb 11th 2012 | WASHINGTON, DC | from the print edition

EVEN people who don’t normally care much for football tune in to the Super Bowl to watch the best commercials Madison Avenue can dream up. The most talked about this year was Chrysler’s gritty tribute to the economic revival of America and Detroit. More short film than commercial, it ends with the actor Clint Eastwood huskily declaring that “Our second half is about to begin.”

The muscular patriotism brought lumps to the throats of sentimental viewers; the more cynically minded called it a re-election ad for Barack Obama, whose administration saved Chrysler from oblivion with a bail-out in 2009. A better explanation may simply be timing: it coincides with the best evidence in months that America’s economy, led by manufacturing, really is on the mend.

Five days before its ad aired, Chrysler, now part of Italy’s Fiat, reported its best January sales since 2008, up 44% from a year earlier. The next day it announced it would hire 1,800 people at a plant in Belvidere, Illinois, to build its new Dodge Dart. The good news is hardly confined to Chrysler. The auto industry as a whole sold 1.2m vehicles in January, many more than expected, and a 4% increase from December. Read the rest of this entry »

Written by gregip

February 9, 2012 at 9:23 am


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