Many regular readers will recall my March "bottom" call of the recession and my projection that by June or July (in retrospect) the economy would be seen to be in recovery. This view is beginning to gain support, albeit in a tepid manner as this article suggests. There appear to be a growing number of "yes, but" economists and others who will say "yes the stock markets are up dramatically, yes productivity is rising, yes there are glimmers of long-term hope in the housing market....but PEOPLE ARE HURTING" so the recovery is less broad-based and tangible.
Maybe the recovery isn't as broad-based as it could be because the recession was never as broad-based as it could have been. Don't get me wrong--we were and are in serious fiscal trouble. But the recession? Unless you were either a) one of the people who lost their job (a rise from 4.8% unemployment to 9.5%) or b) one of the nearly 5% of mortgage holders who missed a payment--the recession was largely about other people! For those who had jobs and homes, inflation remained low, interest rates remained low, and retailers fell all over themselves to offer bargains. Additionally, throughout much of the recession energy prices declined, providing consumers with "extra" pocket money in and of itself.
Again--our economy was poised on the edge of disaster--due to weakness in the fundamental underpinnings of our financial markets. The Bush Administration went to extraordinary lengths to shore up that financial system in its final months, and we are now beginning to see the fruits of those efforts. Additionally, the Obama Administration came in, demonstrated to the markets that it was taking the economy seriously, and markets responded favorably. As for the actual POLICIES that flowed from the President's good intentions, I believe they will ultimately be shown to have slowed/dampened the recovery, unless turned around. The President could go a long way toward that goal by convening Congressional leadership to discuss the "stimulus" legislation and looking to prune spending from it that has not been triggered (you know, 90% of the money).
This recession was deep but narrow. For the overwhelming majority of Americans, it was more psychological than real. Which may be why the "recovery" seems less of a big deal.
Wednesday, August 12, 2009
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6 comments:
Sorry bro but you're missing the big picture. We may get a few blips in the economy that are positive but the fundamentals are terrible. Our debt, monetary policy -you name it- are not where we want to be. Listen, we have had a strong economy for 35 years (since RR) and that foundation won't be destroyed overnight, but it is happening. To put it in a nutshell, by the time Obama leaves office in '12 we will have an economy similar to the Jimmy Carter economy. You remember stag-flation don't you?
Bro? Bro?
A few points on why this recession is worse than you state, and why it will be a long, slow time coming out - not short and deep:
- Household debt is huge; equal to GDP for the first time since 1929. Much of the "prosperity" of the 2002-2008 was simply people borrowing against inflated equity, giving them much more disposable income for a few years.
- Not only is household debt huge, but that debt is as cheap as it has ever been. Any uptick in interest rates digs into household income, far more than a small savings at the pump can offset. As Edmund Conway at the Telegraph point out, this creates "zombie households" - escaping foreclosure, but at a level of debt-service misery that keep them from spending.
- When things stabilize, there simply isn't the equity available to get spending back up to the artificially high levels. People won't be taking loans and spending like crazy.
- Unemployment is high - and companies are cutting hours, requiring unpaid time off, and delaying hiring. Bonuses and raises are down. Don't expect that to come rushing back soon. And new college grads face a lifetime of depressed wages, entering the job market when salaries are low, promotions slow and raises scarce.
- Wait for the other shoe to fall in commercial real estate. Projects are finishing now with no tenants, and no projects in the pipeline.
The credit hangover is huge. I have no mortgage, no CC debt, no car loans - but I'm in the minority. I would like to think it would be "short and deep" - but frankly, we can't spend our way out of this one. I see tough sledding ahead - opportunities for people in my liquid position to invest - but a long-lasting period of low growth.
Anon - Good points and well-explained. Thanks.
Anon,
Great input. I'd like to respond to it, if I may.
1. I don't dispute that the it will be a long, slow time coming out, and I hope I did not indicate that. What I tried to indicate was that for the vast, overwhelming majority of Americans, there has been some sacrifice, but the lack of inflation and low interest rates have kept the recession more of "the other guys" problem.
2. I am also not saying that while the recession is ending, we are on our way to "prosperity" like we had in the 2002-8 timeframe. We'll establish a new normal. The stock market will flatten at 10,000 and grow very slowly for a few years while the housing picture brightens. Without some "inflection point" causing event (like an energy breakthrough), the rise in markets we've seen lately is an anomalous correction to the over-correction of Sept-Mar.
3. You describe a "zombie household". Interesting term. Yes, debt service is going to keep people from buying like they used to. See #2.
4. Spending back to artificially high levels--again, see #2
5. Unemployment, bonuses, salary levels etc---again, part of the new normal. We've reset the economy on a different plane, and it will be flat for a while, then grow slowly. But that is far different than a free-fall.
6. I do believe the commercial real-estate problem could be tough, but I've been listening to the "it will be the other shoe to drop" for six months, and it hasn't yet dropped.
You're right--we can't "spend" our way out of this one. Some government spending, some consumer spending, some business spending---and then lagging way behind--the housing market--will eventually, slowly conspire to grow the economy. Differently than in the go-go years, but growth nonetheless.
What was I thinking calling you "bro"? That was obviously a plebeian slip. I forgot you were a Commodore or Sea Marshall or whatever the hell they call officers in the Swab-Force. You see I was a lowly Spec.4 Grunt (we carried M-16's not paint brushes), and to this day remain uneducated in the worldly ways of officers and gentlemen.
Sorry Sir, won't happen again Sir.
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