A View from Here

Bill's Sisson's weekly Trade Only blog

The choppy waters of a slow recovery

At the American Boating Congress in Washington, D.C., last week, speaker Greg Ip of The Economist reminded the audience of one of the realities of this sluggish economy. We remain in the midst of a slow U- or L-shaped recovery, one that still feels like a recession to millions of people.

“How long can we expect this to last?” asked Ip, the U.S. economics editor of the weekly news publication.

Despite being three years into an “extremely subpar recovery,” the slow process of deleveraging and working through all the debt we’ve accumulated will probably continue until about 2015, Ip predicted. I’m not sure that really surprised anyone.

But despite the starts and stops of the last several years — Greek and European debt woes, Libya, the Japanese earthquake and tsunami, the domestic debt-ceiling debate — Ip said he is feeling more optimistic this year about the economy for a variety of reasons.

What could derail the recovery?

“Oil,” Ip told the legislative conference, “has an uncanny ability to knock the American economy over.” And the soft patch that our economy encountered last year came in part from oil supply fears stemming from the Arab Spring, the revolution in Libya, the return of $4-a-gallon gasoline.

Although four-bucks-a-gallon gas is back, Ip said the rate of increase this year is not as great as it was several years ago, when gas went from $2 and change to $4. In the interim, we’ve all gotten more used to higher gas prices. Therefore, the shock to one’s wallet — and the economy — is less, too, said Ip, author of “The Little Book of Economics: How the Economy Works in the Real World” (Wiley, 2010).

High prices at the pump will remain irritating and a source of election rhetoric, but Ip said that if we make it through this year without a shooting war with Iran, oil prices should not be a significant factor. They won’t rattle the economy.

Other factors play into this, as well:

• Domestic oil consumption is down.
• Domestic energy production is up.
• Fuel economy of autos continues to improve.
• Folks are driving less.

Demand from China and India likely will keep crude prices from tumbling. But, the business journalist predicted, “The price will probably trend higher over the next couple of years but not significantly higher.”

The good news is that Ip does not see the economy stalling out this summer. He said the stock market is not showing signs of a prolonged slowdown, and the housing market is so depressed it can’t weaken any further to drive us back into recession. The banking system has “repaired” itself and is in more of a mood to lend again, Ip noted.

Ip did tell me yesterday in an e-mail that he is looking for signs that the recent rise in unemployment insurance claims might be signaling another slowdown, but he hasn’t seen those signals yet.

Our new normal: smaller, leaner, cautious and — hopefully — smarter.

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