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What’s next? | THINGS PICK UP

Why the economy doesn’t have to slide into recession

Ben Bernanke and the Federal Reserve board meet this week. Ben Bernanke and the Federal Reserve board meet this week. (J. Scott Applewhite/ Associated Press)
By Steven Syre
Globe Staff / August 7, 2011

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Marty Guinoo, the chief executive of Sentient Jet in Weymouth, has seen all the scary economic headlines but still believes his business will maintain its steep growth trajectory.

“With so much capital on the sidelines, I’m optimistic that more of it will find its way into the economy and spur more flying,’’ says Guinoo, whose company provides private jet service and employs 200 people. Bookings for the balance of 2011 are up 25 percent over last year, and he plans to increase the workforce by 10 percent.

The economy needs more people as confident as Guinoo to make good on the kind of growth expectations most analysts had forecast just a few months ago. Steady growth - more than just muddling along - depends first and foremost on consumers and executives having confidence about the future.

“The missing ingredient for much better economic times is just simply the belief that our economy can grow strongly and that businesses and consumers should take a chance - go out and spend and invest and hire more,’’ said Mark Zandi, chief economist at Moody’s Analytics.

Easier said than done. Reports about slower growth in factory production, service-sector activity, and consumer spending are facts. But economists and financial market specialists point to some steps that could help boost growth again.

In America, the federal government could take a few modest steps, such as an extension of the payroll tax holiday, and the Federal Reserve, which meets this week, can continue to send strong signals it will do whatever is necessary to boost the economy. Some economists wonder if the Fed might embark on a third round of so-called quantitative easing - buying securities on the open market as a way to inject more money into the economy - if growth continues to stall.

Government can also provide businesses with more predictability on taxes, regulation, and other policies.

“The greatest stimulus in the world is certainty, and we haven’t had certainty as a country for two and a half years,’’ said Robert Reynolds, chief executive of Putnam Investments in Boston.

European countries need to take a more aggressive approach to their debt problems and commit more money to backstop the weakest members. “They need to expand the size of the bailout fund, go in whole hog, and do whatever it takes,’’ said Zandi.

Constructive, even brave government action around the world is a tall order. Another problem seems even tougher to crack: America’s persistently high unemployment rate.

“Even with the kind of growth we were expecting before, it wasn’t a scenario I think most Americans would be pleased with,’’ said economist Drew Matus of UBS Securities. “If you think about [relatively robust] 3.25 percent growth in the second half of the year, unemployment would still be in the high 8 [percents] going into 2012.’’ The nation’s jobless rate in July stood at 9.1 percent.

Jobs are an important part of economic confidence and analysts all agree employment would grow slowly even under the best of circumstances. The economy will have to add more jobs to rekindle and sustain real growth, but people who already have work and run businesses would need to take the first step.

Katie Johnston contributed to this report. Steven Syre can be reached at syre@globe.com.