As far as I know, none of last weekend's fireworks were ignited to celebrate the economic recovery.
If they had been, they probably would have fizzled like a soggy sparkler.
What? You didn't know that this month marks the second anniversary of the U.S. economic recovery? That's understandable, because there really isn't much to celebrate. It's one of the slowest recoveries on record, and it comes after the deepest recession since the 1930s.
On the measure that's easiest for most Americans to understand — jobs — this recovery barely deserves the name. So far we've regained just 550,000 of the 7.5 million jobs that were lost during the recession. We'll get a fresh reading today on unemployment, which has been stuck in the vicinity of 9 percent.
In the early stages of a turnaround, the nation's gross domestic product typically grows at a 5 percent clip, or better, for several quarters. This time, we've had only one quarter that was above 4 percent, and GDP growth slipped to 1.9 percent in the first quarter of this year.
Ken Matheny, an economist at Macroeconomic Advisers in Clayton, says the second half of this year will be better, with growth rebounding to about 3.5 percent. In part, that's because the economy will face less drag from supply-chain problems related to the Japanese earthquake and tsunami.
Growth of 3.5 percent should be enough to bring unemployment down, but only gradually. Matheny's firm estimates that the jobless rate will be 8.9 percent at the end of this year, and 8.0 percent by December 2012.
To many people, then, the recovery won't feel like a recovery even when it passes its three- or four-year anniversary. It's as if the economy's transmission is broken and it can't get out of low gear.
"Our expectation is that the recovery will continue, but not at the hearty rates we've seen in some past recoveries," Matheny says.
The problem is that parts of the financial system — the economy's transmission, if you will — were badly damaged in the financial crisis. Both banks and homeowners got burned in the housing bubble; banks have become stingier with loans, and consumers realize that they need to save money and repair their credit.
"The biggest issue is what's going on in the markets for the provision of credit, and relatedly, what's going on in the housing market," Matheny says. "While the availability of credit has begun to improve, it's still weak."
Indeed, bank lending has continued to shrink during the past two years. It usually grows substantially in the early stages of a recovery.
On the other hand, corporate profits have grown faster than average during this recovery. Hiring hasn't kept pace, apparently because employers aren't confident that this recovery has staying power.
Meanwhile, state and local governments have been a drag on the jobs numbers. The Economic Policy Institute, based in Washington, noted this week that if you look only at private-sector jobs, the past two years look similar to the recoveries after the 1990-91 and 2001 recessions.
Governments, though, have cut 430,000 jobs since the end of 2009. The institute says that if public-sector hiring had followed the normal pattern, we would have 800,000 more jobs by now.
The size of government was just one of many things — including the banking system and the housing market — that needed to be fixed after the Great Recession. While the repairs continue, the economic fireworks will remain on hold.
By DAVID NICKLAUS
Source: www.stltoday.com
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