Congress Should Internalize This Week’s Economic Data

It is tempting for lawmakers to ignore the seemingly-endless flow of economic data releases, especially as they prepare to take their summer recess. But, please, not this week.

Two numbers in particular will shed important light on the functioning of the U.S. economy. They will also underscore steps Congress needs to take (but is unlikely to do so) and what it should avoid (and is certainly capable of avoiding).

On Wednesday, the government releases the initial estimate for second quarter GDP, the most popular measure of economic activity. Once-buoyant expectations for growth have been serially revised down in recent weeks – so much so that it would not surprise us if the quarterly growth rate were to amount to just 1 percent (and possibly somewhat lower).

If GDP growth indeed disappoints – a frustratingly-common occurrence since the 2008 global financial crisis – official institutions such as the Federal Reserve would need to reduce again their growth projections. And with China also slowing, anticipations of global economic expansion would moderate accordingly.

Wednesday’s GDP release will be followed by Friday’s more widely-watched monthly jobs report.

Analysts expect net job creation of around 185,000 in July, along with a slight decline in the unemployment rate to 7.5%. But what really matters for the wellbeing of the country lies in what lawmakers will not find in the headlines and need to internalize fully – namely, information on the stubbornly-high rate of long-term unemployment, alarming joblessness among the young, and sluggish wage growth for those that do have jobs.

Together, the data will likely confirm what most Americans feel: Despite the Fed’s highly experimental monetary policy measures, the U.S. economy’s gradual healing is yet to attain escape velocity. While the Fed has been able to bolster asset prices (equities, corporate bonds, housing, etc.), it is yet to succeed fully on what matters most: a meaningful and sustainable improvement in the wellbeing of average Americans. See: http://www.ft.com/intl/cms/s/0/044b242a-f619-11e2-8388-00144feabdc0.html#axzz2aWqhlyes

All of this makes Congressional action even more important and urgent, focusing on the trifecta of: inadequate aggregate demand, delayed structural reforms, and residual pockets of excessive indebtedness – each of which features in President Obama’s ongoing economic tour, which is anchored on a simple, powerful and actionable message.

Undoubtedly, the U.S. economy continues to recover, and is doing so in a manner that is more impressive than elsewhere in the advanced world. But, as the President reminds us, the pace remains too moderate. And it is unnecessarily (and avoidably) undermined by legacy issues left unaddressed by Congress, by partial policy responses and by unnecessary potholes emanating from its polarization (including this year’s blunt sequester and the 2011 debt ceiling debacle).

The last thing America needs now is yet another set of self-inflicted wounds emanating from Congress when it resumes work in September. Yet, this far from an insignificant risk.

When lawmakers return to Washington, they will need to agree on two issues that, otherwise, would risk derailing what already is a tepid economic expansion and inadequate job creation: agreeing to a government funding bill and lifting the debt ceiling.

To respond to the legitimate economic needs and aspirations of citizens, Congress at a minimum needs to move beyond partisan bickering and eleventh-hour deal making, and agree to a comprehensive resolution that averts a government shutdown and precludes a replay of the 2011 debt ceiling debacle.

Hopefully, this week’s economic data will go beyond reminding Congress that, five years after the global financial crisis, the U.S. economy is still unable to achieve escape velocity. The numbers need also to serve as a prompt for Congress to move forward … or, at the very least, avoid yet another set of self-manufactured economic problems.