Reports of Recovery Have Been Greatly Exaggerated

As President Barack Obama prepares for his State of the Union address in Congress, where he will no doubt claim credit for signs of economic recovery, new analyses by economists suggest that growth will slow and unemployment will remain virtually unchanged by year’s end.

According to economists surveyed by USA Today, much of the excitement around December retail sales was “hype,” and the fourth-quarter bounce was largely driven by post-earthquake/tsunami activity in Japan, not domestic policy. (When the economy suffers, the President blamed the earthquake; when it recovers, curiously, no earthquakes merit mention).

There is continued uncertainty in Europe, and even new uncertainty about slower Chinese growth. But the great drag on the economy remains the American housing market, according to economists, even though many of them expect prices to stop falling this year. Government interventions and bailouts under Obama and his predecessor may have deferred some pain but have prevented markets from full correction and recovery, reinforcing deep uncertainty.

The eagerness of many journalists to report the (real) positive developments of the past several weeks may have had as much to do with providing the president with a good message for the 2012 election year as with delivering good news to a public desperate for positive signs.

The 112th Congress has succeeded in restoring some fiscal and regulatory stability, but the president’s refusal to compromise on debt and deficit reduction has created new financial uncertainty. The U.S. is still the borrower of choice for global lenders–but only because the dollar remains the global currency, and because the rest of the world is in worse shape.

The President, for his part, continues deliberately to seek confrontation with his political opponents over even the most obscure details–confusing “taxes” and “revenues,” for example, in an attempt to paint Republican opposition to the former as intransigence on the latter. The result is a sense that the country is rudderless, its stagnant economy restrained by a government that insists on controlling more and more yet capable of managing less and less.