After one of the warmest winters on record in New York City, we are starting to look forward to spring and Opening Day of the Major League Baseball season. With Bobby Valentine managing the Red Sox, it is certain that the press will not be lacking for stories with quotes from Bobby V about the Yankees vs. the Red Sox, the greatest rivalry in American sports.
It is a good point, as well, to look back and see how the two different paths traveled by the Cameron coalition government and the Obama administration to foster the fragile recovery from the Great Recession have performed. In January of 2011 I wrote, “As I pointed out in August (Cameron & Clegg’s Early Days), the government’s call for austerity and specific plans were well received, particularly in view of the contagion that was spreading on the continent. Now that they have been in office for more than six months, we are starting to see that the path they have chosen is not without obstacles… It is clear that the Cameron government will need to digest this data and make some adjustments to their plan.” (Two Paths: Austerity vs. QE2)
In addition, I wrote, “In the U.S., where unemployment remains at 9%, the Obama administration and the new Congress will soon be debating cutting the deficit and the need to continue to “invest” in the economy.”
We are starting to get a clearer picture on how both strategies have performed and what adjustments are needed to continue the recovery, while reining in the large deficits, which could crush long-term growth by squeezing out the private sector from the debt markets. Alex Brittain and Nick Winning wrote in the Wall Street Journal, “The U.K. government enjoyed its biggest surplus in four years in January….For the financial year to date, borrowing was 93.5 billion pounds, or 15.7 billion lower than in the comparable period of the previous year…Undercutting the borrowing target would give Mr. Osborne ammunition to argue that his program of spending cuts to pare back the national debt is working, following criticism from political opponents that the strategy is stifling growth and adding to the debt. In November the chancellor conceded that economic growth would be weaker and borrowing higher than expected, meaning the austerity measures would likely go on for longer. But a Treasury spokesman said Tuesday the ONS figures vindicate the government’s strategy. ‘Our credible deficit plan is working and bringing government borrowing down,’ he said…Pressure on Mr. Osborne to ease back on the austerity program has grown as the economy has weakened. The chancellor will reveal new plans to support growth in his budget statement next month.” (February 21, 2012)
We had another data point late this week: “Activity in the U.K. construction sector expanded at the fastest pace in February for almost a year, with a marked increase in new business boosting hopes that the economic recovery is back on track, according to a survey published Friday. Data provider Markit and the Chartered Institute of Purchasing and Supply said their purchasing-managers index for the construction industry rose to 54.3 in February from 51.4 January–the highest reading since March 2011.” (WSJ, March 2, 2012)
Turning to the U.S., Reuters reported, “The U.S. economy grew a bit faster than initially thought in the fourth quarter on slightly firmer consumer and business spending, which could help to allay fears of a sharp slowdown in growth in early 2012.” (Instant view: GDP fourth-quarter GDP revised up to 3 percent, February 29, 2012)
At the same time, we are seeing spring gasoline prices quickly approaching $5.00 in certain parts of the country and our lack of a well-defined energy policy could soon stall the expansion if consumers begin to cut back.
I sense that as we move forward in the recovery cycle, we will continue to see both the U.K. coalition government and the U.S. administration make adjustments to their game plans. Trillion dollar deficits are not sustainable in the long run for the U.S. and high unemployment rates will not be sustainable either for the U.K. I do believe, though, that in the near term both countries will escape the fate of the Eurozone countries, which are in recession.
Mary Claire and I are in Northern California this week and I look forward to welcoming spring with a round or two of golf this weekend!