Friday, September 24, 2010

A recovery that doesn't feel like one

Business Times - 25 Sep 2010

A recovery that doesn't feel like one

The US recession is over. In fact, the economy has been growing since June 2009. That's according to the US National Bureau of Economic Research. But for many Americans it is difficult to talk about a recovery when unemployment remains high, when incomes are not rising and may even be falling and when the housing market is not getting any better.


MOST Americans may not have noticed, but the Great Recession ended over a year ago.

Say what? Yep. The most devastating economic downturn since the Great Depression is over. It was brought to an end in June 2009, 18 months after it began.

Says who? The US National Bureau of Economic Research (NBER) announced this week that, based on its calculation of the broadest measures of economic activity, such as gross domestic product (GDP), hirings and layoffs, and personal income, the US economy has done plunging.

The recession is over, la fin, el final, finito, the End, bye-bye. And the economy apparently is going to grow now. Hey, it has been growing and growing since June 2009.

So happy days are here again?

I suppose it all depends on your definition of what 'recession' is. A recession, we are told, starts when the economy begins losing its momentum and slows down and it ends when the economy stops getting worse and starts growing. Nothing more and nothing less.

But conclusions based on statistical evidence that the recession is over, as the panel of leading economists has done, is not the same as feeling that that is indeed the case.

'When you begin a recovery - when you turn the corner - for quite a while you're quite close to where you were at the bottom,' according to economist Jim Poterba, who chairs the NBER. 'And consequently, the economy may not feel very strong, and that's because it isn't.'

And that is putting it mildly. And it is more than just feelings. In fact, US unemployment remains around 10 per cent, and it will probably remain so for a long time or until private businesses start hiring more people.

And the fact that the unemployment rate was higher in May 2009, the last month of the Great Recession, is not going to change the mood of the American voters. Indeed, according to a recent MSNBC poll, 90 per cent of Americans are worried about the state of the economy, and most of them are dissatisfied with President Barack Obama's economic leadership and policies. And who can blame them?

Paychecks are not growing, while consumer and business bankruptcy filings are continuing to climb. In 75 per cent of US cities, foreclosure filings are on the rise.

If anything, the main preoccupation of households these days is getting out of debt - not spending. Meanwhile companies are increasing productivity - by not hiring.

And this state of affairs is not going to change anytime soon, which is bad news for President Obama and the Democrats.

Many Americans had hoped that Mr Obama would succeed in doing something to make the economy grow the old fashioned way.

So even if his large economic stimulus package had averted a Great Depression, that is not good enough for many Americans. According to the same MSNBC poll, 55 per cent of Americans believe that the president's economic plans have made things worse, increasing the deficit without creating new jobs.

They do not believe that the recession is over and are going to punish the president and his Congressional allies for that.

I suppose that much of this sentiment depends not only on what your definition of 'recession' is but also on what you mean by 'recovery'.

The current recovery has been slower than any other post-World War II economic upturn. And it is very difficult to talk about recovery when unemployment remains high, when incomes are not rising and may even be falling, when new reports point to rising rates of poverty and when the housing market is not getting any better.

Indeed, the NBER made it clear in its reports that the end of the recession only marked 'the declining phase and the start of the rising phase of the business cycle' and that it did not conclude 'that economic conditions since that month have been favourable or that the economy has returned to operating at normal capacity'.

One of the parts of the US economy that has been recovering very rapidly is the private sector where profits are growing and publicly-traded share prices have risen up to 70 per cent.

Ironically, some of the more booming companies, including those in Wall Street, have been accusing Mr Obama of trying to stifle their growth and are giving a lot of cash to Republican congressional candidates who are promising not to raise taxes on the well-to-do Americans while cutting spending on social-economic programmes for the unemployed and poor.

The Republicans insist that their pro-business policies will help speed up the economic recovery. Mr Obama and the Democrats argue that only by taxing the billionaires to fund more spending would new jobs be created.

The American voters will now have a chance to decide which of these two policies will help turn the current 'recovery' into a real one. If at all.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

No comments: