- The US economy is finally shaking off the cobwebs and is set up for a huge post-COVID boom.
- This is because Congress, the president, and the Fed all learned from the lackluster post-2008 recovery.
- Strong and sustained support for workers and American families is going to help boost the economy through 2021 and beyond.
- This is an opinion column. The thoughts expressed are those of the author and do not represent those of his employer nor Insider.
- See more stories on Insider’s business page.
On Wednesday, April 28, it became clear that the US economy’s post-2008 malaise had finally worn off for good.
The epiphany came as I stared at my screen and saw some of the largest companies in the world report staggering numbers. Apple and Facebook shattered expectations for revenue and income as consumer spending and advertiser demand roared. Ford reportedthat semiconductor shortages would mean half of their planned production for April through June wouldn’t take place as demand overwhelmed factories’ ability to make chips.
Earlier in the afternoon,
Chair Jerome Powell had announced that despite positive signs from the economy, the central bank would stay the course with stimulative policy to make sure the COVID shock to labor markets wasn’t just put to bed, but was buried 6 feet under.
Unlike the grim slogging recovery from the global financial crisis, this recovery feels more like a thoroughbred straining against the reins as it gathers steam.
The mistakes of the past
triggered by the financial crisis officially lasted from 2007 through 2009, but it was years before it truly felt over. Home prices didn’t bottom until 2012, consumers steadily reduced their debt levels, and it was nearly a decade before broad measures of labor market health recovered. Manufacturing production bounced back, but not dramatically, and factories always had lots of spare capacity.
After 2008, the Fed and financial markets fretted constantly about inflation that never fully arrived. Fiscal stimulus was lacking, held back by anti-government rhetoric, the birth of the Tea Party, and timidity from the Obama economics team.
This lack of effort by policymakers and a rolling series of macro shocks from the debt ceiling standoff in 2011 to Brexit in 2016 slowed the household recovery from the subprime credit bubble and held back the US economy.
Inflation, investment, and GDP growth were all slow. The Fed (but not fiscal policymakers) eventually helped the economy hobble to the point that it could begin raising rates, but even blooming petite bourgeois confidence following the 2016 election of Donald Trump couldn’t fully shake off the cobwebs.
Learning from the last crisis
There were signs in 2018 and 2019 that a shift might be looming. Wage growth was strong and unemployment was low, and when the Fed got worried it had tightened a bit too much, it eased off the brakes with rate cuts that helped reverse a modest downtick in the housing market.
Over the course of that 2018 to 2019 period, the Federal Reserve ran a “Fed Listens” tour, which tried to take the tone of ordinary people instead of focusing on abstract models. When COVID hit in early 2020, the Fed was ready, and Congress stepped up too.
While COVID has carried a devastating health toll, the economy today is dramatically better off than anyone predicted a year ago. Massive monetary easing and huge fiscal support have reduced debt payments and flooded consumers’
, and businesses have – for the most part – been able to navigate the shock despite hundreds of thousands of American deaths.
The most recent Federal Reserve policy press conference was typically dry, but I did perk up when a question was asked to Chairman Powell about an encampment of houseless people that has sprung up near the Federal Reserve. Powell spent several minutes talking about those people and was obviously uncomfortable as he noted “That could be you. That could be your sister. That could be your kid.”
From the ashes of a slow-growth, over-supplied economy where businesses had little pricing power, wages were weak, and economic policy failed to support already beaten-down animal spirits, we’re seeing a phoenix emerge.
Cars aren’t being built not because people don’t have the money to buy them, but because there’s too much demand for the components used to make them. Businesses are raising prices and complaining about not being able to find enough people to work. The federal government is sending checks to support households while expanding the social safety net for the first time in two generations. Homebuilders are turning away customers because they can’t throw up houses fast enough.
The recession which COVID wrought was never going to look exactly like the last one, but the recoveries are polar opposites. Policymakers are taking real steps to alleviate suffering, and it’s having an obvious impact on results for companies and the overall economic backdrop. Obviously, more can be done, and the follow-on legislation proposed by President Biden tries to further push the envelope in supporting children, the elderly, creaking physical infrastructure, and long-ignored industrial policy.
But aside from the policy, the data, and the politics, this country feels different than it did in 2010. It feels ready to grow again, and return the promise of broad American prosperity that has felt absent for decades and most of all during the 2010s. Here’s hoping that feeling is more than just vibes from some good earnings prints.