The recovery is over.
So says UCLA economist Ed Leamer. He notes that May brought the first year-over-year decline in the Pulse of Commerce Index of domestic diesel fuel use since the end of 2009 – the latest yellow flag to be raised over the sputtering U.S. economy.
The index, which indirectly tracks industrial production via trucking mileage, has now declined in four of the five months this year and in eight of the past 12. The weak showing doesn’t say a recession is at hand, but it means the economy has stopped closing the gap between its actual output and its pre-recession potential growth trend, Leamer says.
That gap, currently around 11% of potential gross domestic product, is not going to get any narrower till we see U.S. output expanding at a rate above 3% — something that doesn’t seem to be in the cards this year. Even skeptics of the U.S. growth story such as Leamer had hoped to see a little better performance in May.
“I was optimistic we’d have a better month,” says Leamer, who oversees the Pulse of Commerce Index along with data provider Ceridian. “But it looks now like the recovery ended last summer, which means we’re just idling.”
Weak wages, slow job growth and heavy debt continue to weigh on consumer spending and the housing industry, which are typically two strong drivers in the early stages of recovery. Leamer says that with those engines sputtering, the U.S. economy is now much more dependent on a strong export performance than it has been before.
And though the second half of the year may bring some welcome relief in the form of lower fuel prices and a rebound in auto sales as Japan rebounds from quake-related damage, there is the risk that the dollar will stop falling against the euro – which could make U.S. exports costlier. It will be interesting to see them blame that one on Bernanke.
In any case, it is a movie none of us has seen before, which stands to make the ending interesting if not probably in a good way.
“U.S. demand has been such a key for the rest of the world for so long,” says Leamer. “This is sort of uncharted territory.”