What Recovery?

The Minneapolis Fed has updated charts comparing the current recovery to the ten postwar recoveries, in terms of output and employment. The beginning of the last downturn is dated July 2007, and the recovery is said to have begun in July 2009. What is shown is not a pretty picture.

The decline in employment during the last downturn was significantly steeper than other downturns, and U.S. employment is shown to have declined overall by 5.6% from the onset of the recession. What's worse is that the decline shows no sign of turning upward, and overall U.S. employment numbers are still 1% below those at the start of the recovery in July 2009. This is unprecedented. The consternation in financial markets today is a reaction to what's suggested in these comparisons and in recent monthly data.

The bullish economic commentators, like Joseph Carson at AllianceBernstein, point out rightly that the contribution of consumer spending and housing to the current recovery is about 25% of the contribution expected at this stage of other postwar economic recoveries. However, AB then appeals to strength in manufacturing and exports as reflecting a changing mix of contributors to the economic recovery. I just can't understand how exports can sustain a contribution to growth when it's only China whose economy appears to be having robust growth, and the Chinese economy has not traditionally had a large appetite for high tech, manufactured U.S. exports.

A more fundamental issue is the long-term damage caused by discouragement and loss of productivity and employability of large segments of the labor force imposed by the reluctance of large and small employers to add workers. Extending unemployment benefits for some workers may earn votes but little of any significance for the economy as a whole.

There is very little that the Federal Reserve has left in its toolbox to address lack of income and employment growth as well as deficient demand. It has to get its balance sheet in order and get out of the Greenspan economic wizard business. Business leaders have to get beyond reporting the next quarter and start investing in their businesses. The business leaders should demand that Washington stop trying to phony up numbers for November elections and start working on rational fiscal policies, including revenue raising through an efficient tax system, in order to generate a real recovery.