- By Joel Naroff

The uncertainty about the recovery is growing. Those who once felt we were in the middle of a typical robust upturn have now decided that all is lost and we are headed back into a recession. And the blame game has begun. Some argue it’s all the government’s fault. If only taxes were cut all would be right with the world. Others say it is a matter of demand and we need more stimulus and government spending. The reality is that we are in the soft upturn that the cards dealt us months ago and we need to accept that it is going to take a long time before the damage of the past decade is repaired and we can get back to solid growth.

The recent economic data have not created a whole lot of happy campers. Job growth was once again disappointing as the private sector added only a moderate number of jobs. Indeed, the 83,000 workers businesses hired are not fast enough to keep the unemployment rate declining. The drop in the rate to 9.5 percent while nice to see was due to a large drop in the labor force. That is a worrisome sign that people may be once again giving up on finding a job. With unemployment claims remaining way too high, the outlook is not good for those looking for a job.

There were other economic reports that raised eyebrows. The nation’s supply managers indicated growth in both manufacturing and services continued, but at a more moderate pace. Housing is stumbling as home sales eased back and applications for new mortgages plummeted. As for consumers, they are spending, but clearly are not shopping ‘till they drop.

Nevertheless, a lot of the weakness was expected. We knew that housing would weaken once the incentives disappeared, so the poor sales pace was hardly a shock, even if the drop was larger than expected. The break neck pace being posted by manufacturers was being driven, at least in part, by the refilling of empty warehouses. Once those stocks were rebuilt, easing demand was likely. Finally, with unemployment rates high and income gains modest, did any really believe people were going to hit the malls hard? Come on!

So what is happening? Growth is continuing but at a modest pace. We still have the headwinds of limited credit availability, worried consumers and uncertain businesses. With fiscal reality hitting state and local governments, their balance budgets actions of spending and payrolls cuts while necessary restrain growth in the near term. Together, these factors argue against any surge in activity.

The economy is evolving as forecast long ago when I proposed the head fake argument. It was clear we would get solid growth as firms rebuilt stocks and households stopped stashing all their money under their beds and began to spend a little more normally. But once those actions were taken and we had to depend upon more fundamental economic factors, there seemed little reason to expect an economic surge. So instead of being disappointed that all the problems created over the last five years didn’t disappear immediately, we need to adjust to the reality of a moderate recovery. That is what we are facing and while the economy will not be all it can be, it also is not falling apart.