Problems in Europe are getting much of the blame for this month’s stock-market correction.
But Martin Regalia, chief economist with the U.S. Chamber of Commerce, links the volatility, at least domestically, to a lack of momentum in the U.S. economic recovery.
“The problem simply is that we aren’t growing fast enough,” Regalia told a gathering sponsored by the Colorado Association of Commerce and Industry and The Denver Post.
The markets were falling hard as he spoke Thursday, with the Dow Jones industrial average dropping 376 points, or 3.6 percent, on the day.
Consumer spending, which represents about 70 percent of the U.S. economy, is growing at a 3.7 percent rate and could start slowing again in the second half of the year.
Coming out of severe recessions in the mid- 1970s and 1982, it rose at a rate closer to 6.5 percent, helping restore job losses in a year or two.
“We missed that initial spurt,” Regalia said.
Despite massive government stimulus efforts, the U.S. economy has replaced only 550,000 of the 8.4 million jobs lost in the recession.
Consumers need to see jobs, incomes and personal wealth restored before they spend robustly again. And they need to spend more or business investments, which make up about 15 percent of the economy, will stall.
The swooning stock market indirectly compounds the problem, given that households have recovered only about $6 trillion of the $14 trillion they have lost.
Housing, an important source of wealth, also faces a severe overhang, with one of every 10 borrowers delinquent in the first quarter, according to the Mortgage Bankers Association.
Fearful of flooding the market, banks have been slow to move on foreclosures — which could keep a cap on home prices for an extended period, Regalia said.
That isn’t to say troubles abroad won’t dampen exports, which have surged so strongly that they prevented the U.S. from losing an additional 2 million jobs, Regalia said.
The turmoil has made the euro cheaper and the U.S. dollar stronger. Europeans will probably be able to buy fewer U.S. goods and will pay more for those they do buy.
“Our major trading partner is Western Europe — and Europe is in the stew,” Regalia said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
