U.S. Economic Recovery - How Is It Different from a Recession?

So here we are, in the midst of a recovery. Remind me: How is this different from a recession?

Oh, right: Some things are getting worse more slowly than they used to, and other things have gotten so bad that they can't possibly get any worse. And a few things are actually getting better. When economists add it all up, they're tallying the first net gain in more than a year.

On the plus side, corporate profits have picked up and business executives are more optimistic. All that stimulus spending and those aggressive maneuvers by the Federal Reserve are kicking in. So are all the layoffs—in a good way: With fewer workers, companies have enjoyed a surge in productivity. Moody's Economy.com believes the recession that officially started in December 2007 officially ended in August 2009. Hooray! It's over!

Except that an awful lot is still going wrong. Even if the economy is growing again, the number of jobs isn't, and most economists expect the unemployment rate, now 9.7 percent, to keep rising until the middle of 2010. So we're having a "jobless" recovery. Home sales have picked up, but prices are still falling and foreclosures keep hitting new records. So we're also having a homeless recovery. The commercial real estate market has only begun to collapse. Bad loans on real estate and consumer purchases could bring down another 400 banks before the financial meltdown is over. Anybody who wants to start or expand a business is more likely to get swine flu than a loan.

We're having a jobless, homeless, loanless, and maybe a recoveryless recovery. This is the kind of recovery that makes you wish you were still in the downward-spiral phase, like the first moment when you open your eyes after a wild, boozy night.

Maybe the recovery will start to feel better the longer it lasts. But it could also be an endless recovery that never quite brings a return to prosperity. American consumers are out of money, and they have little choice but to save their disposable income in order to replace all the wealth they've lost in the housing bust and stock market crash. Consumer spending accounts for two thirds of the economy, so even a minor decline can wreck the economy if it persists. And one entrenched problem feeds others. With so many people out of work, raises will be scarce, incomes flat, and consumer spending weak. Economist Gary Shilling says that for a net gain in jobs, the economy has to grow by at least 3.3 percent per year. But most economists predict much lower growth for 2010, and some think weak growth will last much longer than that. If it does, who's going to spend the money that forces the economy out of rehab?

Oh, yeah, I forgot: The government's going to spend the money. With private construction dead and consumers broke, stimulus projects, unemployment benefits, and rebates on cars and homes are going to sustain a vibrant new welfare economy. Until the government itself runs out of money—which, technically speaking, has already happened. (Cliché alert: Instead of looking for "green shoots," economists are now anticipating the moment when "the training wheels come off" and the economy moves forward without government stabilizers.)

The good news is that most Americans probably know that a recovery doesn't start when economists or politicians (or the media) say so. It starts when local companies start hiring again, when it's possible to get a raise, and when take-home pay covers the bills with something left over. In much of the country, that hasn't happened yet. When it does, tell the economists that the real recovery has begun.

Disclosure: no positions

Comments

[untrusting ...:]

Your points are of course exactly correct. But the "green shoots" media blitz and bailout mania was never about the average American. Nor was the artifical support in the markets. It was always about rescuing the wealth of the public companies and their executives and the oligarchs. There is a reason why corporate insiders are selling at record numbers. There is a reason why public companies and big banks are raising as much new captial as they can and issuing as much new debt as they can, and both as fast as they can. Public company executives are still collecting their multi-million dollar compensation and bonus packages. Goldman and other mega banks, HFT'ers, and the financial engineers are making record trading profits for a reason. The top 1% is solidifying their wealth and that is what really matters to them and the politicans. For everyone else the recession will keep going on for a long time more with a lot more pain yet to come.

Sep 11 02:31 AM

[Dave Wrixon:]

Well ,that is the prognosis for the L-shaped recovery, but realistically a dollar collapse is likely to force interest rates higher which will catapult the US in to the second downward leg of a W-shaped recession, and all the signs are that the second leg will worse than the first, due in part to the loss of the Safe Haven shield. Failure to raise interest fast enough also brings the risk of hyperinflation, so the Fed will be treading a tight rope between inflation and deflation, but neither option is likely to bring robust expansion.

Realistically, what do you think the liklihood of the optimistic L-shaped scenario really are?

Sep 11 03:01 AM

[Dotcom:]

So, how do we average Joe's invest to protect ourselves during times like those described above? CDs?, Gold?, Dividend Paying Stocks?, Money Markets, TIPS? And, when should we start making a move?

I would like to see more articles or articles that pretty well describe what is unfolding (like this one) and opinion on how and when to position ourselves for scenarios we see coming our way, e.g. the long term L-Shaped Recovery. Best survival techniques.

Sep 11 02:03 PM