Economist Anirban Basu: Recent signs have not been encouraging

'This year, we'll have difficulty achieving 2.0 percent growth'

June 09, 2012|By ARNOLD S. PLATOU |
  • Basu

The willingness of Americans to buy new shoes or even a new bicycle is the kind of economic enthusiasm that has been fueling recent growth in the economy.

But a worn sole and a flat tire might be just ahead.

Recent sales data in Washington County and nationally “would suggest that consumers are off to the races and so, too, therefore, is the broader economy,” said Anirban Basu, chairman and chief executive officer of Sage Policy Group Inc., a Baltimore economic and policy consulting firm.

“(But) I just don’t think that is true. And, it’s not true because consumers are no longer receiving the kind of news that instills (economic) confidence,” Basu said in an interview last week.

“They are no longer hearing about robust job growth. They are no longer hearing about declining unemployment. They are no longer hearing about resolutions to the European crisis. They are no longer hearing about financial markets that are stable as opposed to volatile.


“Add all that up. That momentum may begin to dissipate as we move into the summer and toward the fall,” Basu said.

Basu — for years the keynote speaker to hundreds of area business people at the Washington County Economic Summit each November — said Thursday that the nation’s tepid recovery from the recession so far has been powered more by consumer spending than by industrial output.

“Indeed, while there was a 1.9 percent increase in Gross Domestic Product in the first quarter (January through March), the consumer expenditures for the quarter increased 2.7 percent,” Basu said.

Gross Domestic Product, commonly referred to as GDP, is essentially the market value of all the goods and services produced in the United States.

“Much of the growth was, therefore, concentrated in consumer purchases,” Basu said. “Until recently, the labor market has been stabilizing, personal income has been stabilizing and, consequently, there has been increasing consumer confidence.”

However, he said the signs coming from such economic indicators more recently have not been encouraging.

“Based on that, the momentum in consumer spending may not persist through the summer,” Basu said.

Although the U.S. economy expanded in 2010 by 3.0 percent, “this year, we’ll have difficulty achieving 2.0 percent growth,” Basu said.

“And so, what that tells us is, there are significant parts of the U.S. economy that have really not been that resilient. And among those is the housing market. The housing market has yet to fully stabilize. And, we continue to hear announcement on occasion of layoffs from the industrial manufacturing sector,” he said.

“And so, there are still other aspects of the economy that continue to sputter.”

What happens next will depend a lot on what Congress does regarding tax cuts and automatic federal spending cuts, as well as what happens in countries such as Greece and Spain, which are facing economic crises, he said.

“Until we can focus on things other than Greece, and Spanish bond auctions, business decision-makers will not be of a mind to focus on expansion including job growth,” Basu said.

“And, without job growth, there isn’t significant personal income growth. And, without significant personal income growth, there is not consequential spending growth.”

There is a lot of uncertainty and that, in itself, can be costly, he said.

“Economists are justified in speaking about uncertainty because the level of uncertainty is enough to cause the recovery to stall,” Basu said.

“When and if these various uncertainties are resolved and trying to predict how ... will be difficult,” he said. “It’s hard enough to predict the economy, and it’s almost impossible to predict politics.”

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