Much of this resilient recovery can be traced to some smart choices made by President Obama and Congress. They focused on investments that helped manufacturing and commercial construction. They provided help to struggling states and localities. And they enacted middle class tax cuts that boosted consumption. The recipe for gaining further momentum is more of the same.
These federal policies worked by strengthening the private sector, where possible: This meant attention to the struggling manufacturing sector through the Recovery and Reinvestment Act of 2009. It meant infrastructure investments and help for the auto industry. And it meant strengthening household after-tax income to reduce families’ debt burdens through increased unemployment insurance benefits, tax credits for working Americans, increased Social Security benefits, and a payroll-tax holiday – all measures targeted toward boosting middle-class incomes.
The results are in the numbers. Manufacturing production expanded by an annualized growth rate of 5.6 percent from June 2009 to June 2012, recovering many of the losses before the Great Recession started in December 2007.
Construction spending by federal, state, and local governments on highways, schools, railroads, hospitals, and other projects expanded by an annual inflation-adjusted rate of 3 percent over the same time period, thus offsetting the declines in private-sector construction spending.
And after-tax income grew by an annual inflation-adjusted rate of 1.2 percent from June 2009 to June 2012, helping to reduce the household debt burden.
Stronger production, more infrastructure spending, and higher incomes had other intended results. Employment started to grow in February 2010, and now there are now more than 3 million more jobs than in June 2009. The unemployment rate started to drop, falling below 8 percent for the first time in almost four years. And the manufacturing resurgence went along with increased US competitiveness, reflected in an average annual export growth rate of about 8 percent over three years. The economy has performed like a car with the parking brake still pulled. The surprising thing is not that the economy hasn’t grown faster, but that it hasn’t gone into another recession.