WASHINGTON — After years of bad news begetting more bad news, the American economy finally might be building momentum in the other direction.
A flurry of economic reports issued Thursday captured some solid recent gains: Companies are hiring. Factories and department stores are busier. Americans are buying more cars.
And the stock market just ended its best February in 14 years.
Thursday’s reports also showed that a healthier job market hasn’t translated into bigger paychecks for workers or a surge in consumer spending, and the progress of the past few months is now threatened by a rise in gasoline prices.
On one hand, analysts say the economy might be on the verge of a “virtuous cycle,” in which stronger hiring fuels more consumer spending, which leads to even more hiring and spending.
On the other hand, even months of improvement have yet to demonstrate that the cycle can sustain itself.
Miserly employers aren’t helping. Pay raises are all but invisible. Across the country, wages and salaries rose less ($25.5 billion) in January than in December ($29.9 billion) – even though the economy added 243,000 jobs in the interim.
Gasoline prices are up 30 cents to $3.74 a gallon over the past month, according to AAA’s Daily Fuel Gauge.
Economists say today’s prices probably won’t do much damage to the economy, but if gas blows past $4.50 a gallon this summer, all bets are off.
Thursday’s reports showed an economy maintaining its growth 2½ years after the official end of the Great Recession: The number of people applying for first-time unemployment benefits fell last week to a four-year low. And automakers, such as Ford and Chrysler, and many retailers, including Target Corp. and Macy’s Inc., reported improved sales for February.
At the same time, the government said consumer spending flat-lined in January after adjusting for inflation. Manufacturing activity grew at a slower pace in February as factories received fewer orders and had to pay more for raw materials. And construction spending slipped in January, the first monthly drop since July.
Another worrisome sign is that gas prices are headed toward $4 a gallon.
All that comes even as a strong report this week on consumer confidence helped lift the Dow Jones industrial average past 13,000 for the first time since May 2008. Unemployment has dropped for five straight months. And the economy has generated nearly 2 million jobs over the past year.
Once a virtuous cycle feeds on itself, optimistic consumers spend more, which motivates businesses to hire more. And so on.
That still might happen. But consumers are struggling to sustain their confidence after the housing market collapsed and the resulting recession vaporized $7.8 trillion in household wealth from 2006 through mid-2011.
“The recovery is still bearing the scars of the recession and the crisis that led into it,” said Sean Snaith, the director of the University of Central Florida’s Institute for Economic Competitiveness.
Even the Federal Reserve appears baffled by the economy’s unpredictability.
Chairman Ben Bernanke told lawmakers this week that the recovery remains “uneven and modest by historical standards.” Yet he also acknowledged that the Fed underestimated the job market’s strength, which has led to sharp declines in unemployment.
The Fed might need to re-examine its outlook — and policies— if that strength continues, he suggested.
Expectations for economic growth this year are already muted. Beth Ann Bovino, senior economist at Standard & Poor’s, expects growth to slow from a 3 percent annual rate at the end of last year to 2.1 percent this year and 2.3 percent in 2013.
“It’s a very subpar recovery,” she says. “Historically, after a recession ends, we would see 5 percent growth. ... I think we can survive $100 oil. But it’s going to make this pretty lousy recovery feel even worse.”