(Repeat of item initially transmitted on Sunday, Sept. 12)
By Steven C. Johnson
NEW YORK, Sept 13 (Reuters) - Alan Greenspan coined a memorable phrase or two in his day, but Federal Reserve chief Ben Bernanke may have outdone his predecessor when he described the U.S. economic outlook recently as "unusually uncertain."
It doesn't lodge in the memory banks the way Greenspan's "irrational exuberance" remark did, but it's a frighteningly accurate summation of both the U.S. economic recovery and the sense of economic and political drift felt in developed economies.
More than a year into recovery, the Fed, the European Central Bank and the Bank of Japan have acknowledged their economies still need help and have taken steps to keep interest rate policy loose.
Economic data has been mixed at best, particularly in the United States, which still suffers from high unemployment and sluggish job growth, while politics across the developed world have grown increasingly fractious.
Japan's prime minister faces a party leadership vote on Tuesday as the yen strengthens, the economy struggles and public debt mounts. European countries face restive populations as they prepare to cut spending and reduce deficits.
"There's policy uncertainty, there's economic uncertainty and there's market volatility. All three are intricately linked right now," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
PAINFULLY SLOW
The G7 share of the global economy has declined in recent years but is still crucial to sustaining global growth. To that end, the U.S. outlook remains most important of all.
Economists were pleasantly surprised recently by a batch of better-than-expected reports on employment and manufacturing, but the trend remains toward slower growth. The economy grew at a 1.6 percent annualized rate in the second quarter, down from 3.7 percent in the first three months of the year.
Reports on U.S. retail sales, consumer prices and
industrial production this week will be watched closely for
signals of any uptick.
Retail sales tend to plunge during times of market volatility;
with the VIX market volatility index (aka the "fear index")
relatively low in recent months, analysts expect a modest gain
in August retail sales. For a graphic on this, click on:
http://link.reuters.com/zux72p
Admitting that progress has been "painfully slow," President Barack Obama has proposed new measures to boost growth, including infrastructure investment, middle class tax cuts and business tax cuts designed to boost hiring.
Economists at Societe Generale described the proposals as "marginally positive for the economy, but unlikely to provide enough of a positive shock to change the direction of the expected recovery over the next 12 months."
What's more, opinion polls suggest the opposition Republicans will sweep the U.S. midterm election in November, leaving markets bracing for two years of policy gridlock.
That, SocGen said, suggests policy will remain highly uncertain at a time when the U.S. economy needs a fiscal boost to supplement central bank efforts to stimulate growth.
STRUGGLES IN JAPAN, EUROPE
Ken Mayland, president of Clearview Economics in Pepper Pike, Ohio, refutes Bernanke, though, by saying none of this is particularly unusual in the aftermath of a deep recession.
"This really is a common state of affairs," he said. "People's views of the future are colored by the recent past, and our recent past has been a very unpleasant one."
But the Fed chief certainly appears to have tapped into the zeitgeist, and many economists fear it will indeed take a long time for the world economy to return to health this time.
Sluggish U.S. growth and historically low yields have caused trouble for Japan by driving the dollar to a 15-year low against the yen. That hurts export-driven Japanese firms and stock prices and, officials fear, pushes the economy even further into deflation.
Whether to intervene in currency markets to weaken the yen -- a tall order that economists say may not work -- is one of the contentious issues tearing at the fabric of Japan's fragile ruling party, which faces a leadership vote on Tuesday.
Europe is another question mark, and revived worries about debt burdens and the health of euro zone banks with high exposure to sovereign European debt should keep financial markets on edge in the week ahead.
Another former Fed chairman, Paul Volcker, said the United States, along with Japan and much of the euro zone, will not return to peak levels of production for several years, even if the U.S. economy grows around 3 percent a year.
"I'd like to think of it as a slog ... with every step you take, it takes a lot of energy. You think you're going backward instead of forwards," he said. "That's the way this economy feels at this point. That's true of the United States, it's considerably true of Europe." (Reporting by Steven C. Johnson; Editing by Dan Grebler)