Good times are coming back to America. The Dow is flirting with pre-recession levels. US joblessness has fallen by more than 200,000 in each of the last two months, and the trend shows signs of persisting. And whatever the curmudgeonly groundhog from Punxsutawney says (six more weeks of winter), spring came early to America’s side of the Atlantic. While Europe was blanketed in snow, Washington had early daffodils.
Indeed, so sharply has the mood shifted that last week’s strong note of caution from Ben Bernanke, the Federal Reserve chairman, was largely ignored. Far from joining the celebrations, Punxsutawney Ben spent much of his testimony urging senators not to slap an early frost on the recovery (by premature fiscal tightening). Nor did he see much to celebrate. Mr Bernanke said America’s 8.3 per cent unemployment rate “understates the weakness of the labour market”. Long-term joblessness had shifted higher.
Some commentators saw Mr Bernanke’s words as a display of tactical pessimism from one whose reputation suffered from his pre-recession optimism. Yet his observations went to the heart of today’s US economy. No one suggested America would not recover. The right question is what kind of recovery it will be. Will it be like the 1990s, when a rising tide lifted all boats? Or will it follow on from the last cycle, in which the US had the same total of jobs at the end as it had at the start – and in which median income fell?