Despite the bevy of disappointing economic reports recently, the U.S. economy might be better off than you think.
To be sure, there's no shortage of reasons to fret. May's dismal unemployment numbers took the teeth out of an improving job-market outlook, and debt problems in Europe continue to rattle investors worldwide. Add abnormally bad weather around the globe and supply-chain disruptions in Japan that slammed the American auto industry last month, and it all amounts to an economic "soft patch" that feels more like a hard landing.
But some experts argue that the recent roadblocks are transitory and mask a rosier bill of economic health. "We've got this idea that we've really slowed down, but the actual inherent growth rate of the economy has sped up. It's just being covered up by temporary forces," says Jim Paulsen, chief investment strategist at Wells Capital Management.
While those "temporary forces" comprise a seemingly endless catalogue of challenges facing the U.S. economy, the data tell a different story: The economy has indeed hit a road bump, but there are still plenty of bright spots hiding amid all the "soft patch" angst:
Job creation has nearly doubled. After several months of encouraging gains, the economy added just 54,000 jobs in May, falling well short of the 170,000 economists had predicted. The short-term outlook leaves little in the way of a silver lining, but the pace of job creation so far in 2011 is nearly double what it was in 2010.
That may be little consolation for the nearly 14 million Americans who are still unemployed, but economists remain optimistic that job creation will pick up again as the impact of temporary economic disruptions diminish.
"More than two million people are now employed versus a year ago. It's a step in the right direction," says Jeffrey Cleveland, senior economist at Payden & Rygel. "April probably was a little exaggerated with more than 250,000 [jobs added], so that was probably overestimating the actual trend, and May was the payback. If you look [at] the three-month average, you get a better sense. We're somewhere between 100,000 and 150,000 jobs being created every month."
Small businesses have been the main driver of job growth, hiring more than a million people over the last 12 months. "Small businesses are pretty much the U.S. employment picture," Cleveland says. "Most of the U.S. economy is made up of small businesses, and they've been a big contributor to net job gains over the last 20 years, so that's a really good sign that they're hiring back and moving along."
Credit availability is improving. "An important missing component of the current recovery—borrowing and lending—has also recently emerged," says Paulsen, a factor economists say is crucial to lift the economy out of the doldrums. While corporations remain hesitant and cautious on the whole, short-term borrowing has been rising steadily since November, a sign that confidence might be building among businesses.
"Credit recovery has taken awhile in the last three recoveries, including this one," Paulsen says. "Last year there was no evidence of banks making loans, they were still going down, [but] this year now we now see some evidence of it picking up."
Business lending has ticked up at a 9 percent annualized rate in 2011, according to the Federal Reserve. "That certainly shows a change in propensity among businesses to step up and start borrowing money," he adds. "That's a real difference from last year."
Consumers are also feeling a bit more comfortable using credit. After declining continuously from its January 2009 peak, consumer credit has been on the upswing for seven straight months. While that doesn't amount to anything close to a credit boom, economists say the turn is significant. "While people are worried about Greece and this soft patch, what we've done is double job creation and started some credit creation," Paulsen says. "Those are huge events."