Companies Aren’t Jumping Into the Latest Economic Recovery With Both Feet

The U.S. economy seems to be indicating it is back on a growth track. The second-quarter GDP reading registered an increase of 4%, more than picking up the slack from a 2.1-percent decline during the first quarter as a tough winter slowed American economic activity. But many CEOs and business owners remain worried that the U.S. economy once again could ease off as the year goes on and are being cautious in their decision making.

“Many CEOs and business owners remain worried that the U.S. economy once again could ease off as the year goes on and are being cautious in their decision making.”

Up-and-down has been the pattern the last few years as the economy took off at some point during the first halves of 2011, 2012 and 2013, only to falter again later in each year. And in 2014, there’s also recognition by business leaders of an additional factor: Job stagnation has become a major stubborn drag on consumer optimism and therefore on the possibilities for long-term economic growth.

Gains in consumer spending and business investment helped the economy rebound at a 4-percent annualized rate from April through June, better than the 3-percent rate that had been projected by economists. Companies also added 218,000 workers to their payrolls in July, exceeding the average for the year and showing that improving demand is bolstering the employment market.

Many analysts jumped on the gains as a sign that the U.S. economy finally is shifting into a higher growth gear after largely bumping along in the four years since the Great Recession. The U.S. Fed now is seen as having more leeway to stop stimulating the economy with things such as its massive bond purchases.

But as stock-market volatility since that report shows, the economy has a long way to go before its growth can be depended upon. American consumers, especially on the lower income rungs, remain financially strapped and wary, and many CEOs and business owners remain reticent to open their purse strings too far to invest in new plants and equipment.

“While job growth has resumed, it hasn’t been strong enough to help convert many part-time jobs to full-time positions or to pull millions of Americans from off the sidelines.”

One of the biggest reasons for vestigial pessimism is that, while job growth has resumed, it hasn’t been strong enough to help convert many part-time jobs to full-time positions or to pull millions of Americans from off the sidelines where many have grown so discouraged that they’re no longer actively looking for work. Younger workers have been especially afflicted. That’s a sign of an economy with a soft underbelly and continued vulnerability to swings in momentum and growth.

Speakers at the annual auto-industry Management Seminar in Michigan have been among those commenting on this remaining weakness in the economy. Though seemingly robust, new-vehicle sales continue to be depressed by a lack of full-time jobs for adults, Yen Chen, senior economist at the Center for Automotive Research, told the gathering. “That’s the reason we didn’t have very strong growth since the end of the recession,” he said.

Meanwhile, Itay Michaeli, a Citi analyst, told seminar attendees that annual auto-industry sales now would be at 17.4 million units a year in a “normal recovery” instead of the current annual sales pace of 16.5 million vehicles. The reason for the shortfall? Economic anxieties by young families ages 35 to 44 who normally would be buying additional vehicles as they have children, but who now are “reluctant” and “afraid to buy a second car.”

Dale Buss :Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other business publications. He lives in Michigan.