Christine Lagarde, managing director of the International Monetary Fund, had some cautious but optimistic thoughts about the U.S. economy to share with David Gregory on Meet the Press recently. Lagarde, who has led the IMF since mid-2011, suggested that despite all the noise, economic data are generally positive, and policymakers from the Federal Reserve to Congress appear to be providing tailwinds.
The noisy data speak for themselves, even if what they have to say is a little garbled. The headline unemployment rate has fallen, most recently to 7 percent in November from 7.3 percent in October, but it’s unclear if the dip has been for the right reasons. Jobs are being added at a rate of about 200,000 per month, but labor force participation has also declined dramatically since the crisis, and the number of long-term unemployed and discouraged workers remains extremely high.
These negatives muddy the water and make it more difficult to understand exactly how healthy the labor market — and by extension, the economy — is. A recent upward revision to the third-quarter gross domestic product growth estimate is a positive sign, although there were some false economic starts at other points in the recovery.
Lagarde indicated that increased confidence in both the economy and policymakers will help play a role in the recovery. Gallup’s Economic Confidence Index increased to -20 in mid-December, up from recent shutdown-induced low of -39 and about 5 points shy of pre-shutdown readings. The outlook component of the index is on track to edge above the current conditions component. The outlook component was positive as recently as June but turned sour over the summer, alongside the current conditions component.
As for U.S. policymakers, Lagarde appeared to approve of the job that Fed Chairman Ben Bernanke and the Federal Open Market Committee did with the announcement of the taper last week. She said on Meet the Press that the taper was “very well communicated” and that the taper signals that the Fed thinks the recovery is finally gaining traction.
For its part, the IMF, which is expected to release an update of its economic outlook sometime in January, believes the recovery is accelerating. “We forecast further pickup in 2014,” Lagarde told Gregory during the program. “Most people who invest, who hire, will tell you that they are uncertain. They were uncertain. Because seeing a budget deal, seeing tapering by the Fed, which is a sign of confidence in the real economy, should lead them to invest, to hire, to be more confidence in the recovery of the U.S. economy.”