Slinking Through the Dog Days

With August being my birth month and as the keeper of two energetic canines, I’ve long bridled at the negative characterization of this stretch of summertime as the “dog days.” But given the economic news we’ve gotten lately, and the meager prospects for anything better than what’s come out of the nation’s capital, it seems that the association between midsummer and torpor is on target this year.

It’s not just the debt-ceiling deal that prevents an imminent default on Uncle Sam’s obligations but does little to address longer-term issues. Nor is it only the fallout from the prolonged and rancorous debate, i.e. the shaken confidence of consumers, the public markets, the federal government’s global creditors and now the ratings agencies, all of whom may have wondered whether anybody was in charge. No, it’s primarily the fact that the Commerce Department has revised the first-half GDP growth numbers downward, so that calling the recovery anemic now seems unduly rosy. Accordingly, economists are cutting their forecasts for this year and 2012, which doesn’t bode well for employment growth, even if a double-dip remains more of a possibility than a probability.

An Associated Press account summed up the story as of August 2011 in four sentences that barely exceed the character limit of a tweet: “Shoppers won’t shop. Companies won’t hire. The government won’t spend on economic stimulus—it’s cutting instead. And the Federal Reserve is reluctant to do anything more.” As blunt and un-nuanced as that summary may be, it’s hard to dispute it, although you could argue that the job market is healthier year-over-year. And aside from avoiding the potentially disastrous implications of a US credit default piled on top of an already hampered recovery, it’s difficult to argue that the debt-ceiling deal will brighten the near-term outlook.

Where to from here? Having managed to reach a debt-ceiling deal just before the clock ran out, our nation’s lawmakers are waiting on the formation and deliberations of a super-committee that will map out the $1.5 trillion of spending cuts mandated by the agreement. While the committee is in session, expect a gradual decibel increase in the volume of calls for either more spending cuts (Republicans) or tax reform/increases (Democrats) as the one clear path out of the woods, followed by bickering and grandstanding along party lines. Sigh…

But all of this will be something to look forward to in the fall. Until then, expect more of the same: mixed signals about the economy, with continued reluctance by both consumers and employers to give the purse strings a little slack. The President has said he’s got some more job-growth measures in mind, such as extending a cut in payroll taxes, but presumably we’ll have to wait until at least September to hear much discussion of these strategies.

As I write this, Colliers International has just issued a report describing second-quarter office market recovery nationwide as modest and uneven, with a few star performers (e.g., New York City, San Francisco and yes, Charleston, SC, which recorded the largest YOY percentage increase in asking rents) and demand overall hampered by weak job growth. It’s not hard to understand why. For the underlying fundamentals, the dog days are upon us.