Jobless recovery in the United States
Tuesday, 3 November 2009
Syed Jamaluddin
The US economy pulled out of recession in the third quarter of this year when output grew at a seasonally adjusted 3.5 per cent annual rate. The recession is over but not the pain. The economy has turned around from its deepest slump since the 1930s and is in the early stages of a recovery. Unemployment is about to cross the 10 per cent mark. How can both be possible?
Many forecasters say they will show GDP growing at an annual rate of about 3.0 per cent, validating a widely held belief among economists that the recession ended in June or July. But this is not good news to more than 15 million unemployed, the small businesses and individuals who can't get loans and the people whose homes are worth less than their mortgages. Assertion by government and private economists that the recession is over-issued amid graphic examples of continuing wide distress-are raising fresh questions about economic scorekeeping. The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.
A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organisation, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over. The US Federal Reserve Chairman Ben Barnanke said that from a technical perspective, the recession is very likely over. "A recession that showed no signs of ending last January appears to be firmly entering the recovery phase," said Christina Romer, the chair of the White House Council of Economic Advisers.
The US economy has lost 7.2 million jobs since the recession began in December2007-- 3.4 million of them since President Barrack Obama took office in January. There have been 11 recessions since the Second World War. In the two most recent ones, job growth lagged behind after the recessions were deemed over. In the most recent two -- July 1990-March 1991 and March-November 2001-the unemployment rate did not fall to pre-recession levels for several years.
While there are signs of recovery, it is uneven. Stocks have surged about 50 per cent since their March lows. A year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.
But smaller banks and other businesses are struggling and may have failed or are failing. This has sparked anger among the public and led to sweeping government action to limit executive compensation at financial firms that accepted federal bailout money.
"While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need,'' Obama said in his weekly radio and Internet address. "These are the very taxpayers who stood by Ameica's banks in a crisis-now it is time for our banks to stand by creditworthy small businesses and make the loans they need to open their doors, grow their operations and create new jobs''.
There have been modest improvements in manufacturing and other parts of the non-financial business sector, yet there are lingering signs of weakness in commercial real estate and retail spending. Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute this to government stimulus spending, accommodative Fed monetary policies and widespread cost-cutting by companies.
Many companies allowed the inventories to run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. US exporters have benefited from a relentless decline of the dollar that has made US goods cheaper and more competitive overseas but none of this adds up to a sustainable upswing. It is said that absence of robust job growth does not make a true economic recovery.
Many economists predict economic activity won't grow as much in the months ahead as the impact of Obama's $787 billion package of increased government spending and tax-cuts fades. The National Association for Business Economics thinks that growth will slow to a 2.4 per cent pace in the current October-December quarter.
The US avoided the Second Great Depression that seemed to be a real possibility. Much of the recent economic data suggest that the economy has bottomed out. Most risks are behind. The financial system has improved but it is not yet back to normal. The downturn has run its course. Housing sector finally seems to be improving. Much of the stimulus money remains to be spent and will add to growth as the year proceeds. It could take several years to return to full employment.
President Barrack Obama said late last week that the United States was recovering from deep recession and that hundreds of thousands of jobs had been created through massive investments.
The president cited the report on gross domestic product (GDP), pointing out that in the third quarter, GDP grew for the first time in over a year -- and faster than it has been in the previous two years. He said that the country was moving in the right direction.
The writer is an economist and columnist. He can be reached
at: syedjamaluddin22@yahoo.com
The US economy pulled out of recession in the third quarter of this year when output grew at a seasonally adjusted 3.5 per cent annual rate. The recession is over but not the pain. The economy has turned around from its deepest slump since the 1930s and is in the early stages of a recovery. Unemployment is about to cross the 10 per cent mark. How can both be possible?
Many forecasters say they will show GDP growing at an annual rate of about 3.0 per cent, validating a widely held belief among economists that the recession ended in June or July. But this is not good news to more than 15 million unemployed, the small businesses and individuals who can't get loans and the people whose homes are worth less than their mortgages. Assertion by government and private economists that the recession is over-issued amid graphic examples of continuing wide distress-are raising fresh questions about economic scorekeeping. The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.
A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organisation, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over. The US Federal Reserve Chairman Ben Barnanke said that from a technical perspective, the recession is very likely over. "A recession that showed no signs of ending last January appears to be firmly entering the recovery phase," said Christina Romer, the chair of the White House Council of Economic Advisers.
The US economy has lost 7.2 million jobs since the recession began in December2007-- 3.4 million of them since President Barrack Obama took office in January. There have been 11 recessions since the Second World War. In the two most recent ones, job growth lagged behind after the recessions were deemed over. In the most recent two -- July 1990-March 1991 and March-November 2001-the unemployment rate did not fall to pre-recession levels for several years.
While there are signs of recovery, it is uneven. Stocks have surged about 50 per cent since their March lows. A year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.
But smaller banks and other businesses are struggling and may have failed or are failing. This has sparked anger among the public and led to sweeping government action to limit executive compensation at financial firms that accepted federal bailout money.
"While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need,'' Obama said in his weekly radio and Internet address. "These are the very taxpayers who stood by Ameica's banks in a crisis-now it is time for our banks to stand by creditworthy small businesses and make the loans they need to open their doors, grow their operations and create new jobs''.
There have been modest improvements in manufacturing and other parts of the non-financial business sector, yet there are lingering signs of weakness in commercial real estate and retail spending. Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute this to government stimulus spending, accommodative Fed monetary policies and widespread cost-cutting by companies.
Many companies allowed the inventories to run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. US exporters have benefited from a relentless decline of the dollar that has made US goods cheaper and more competitive overseas but none of this adds up to a sustainable upswing. It is said that absence of robust job growth does not make a true economic recovery.
Many economists predict economic activity won't grow as much in the months ahead as the impact of Obama's $787 billion package of increased government spending and tax-cuts fades. The National Association for Business Economics thinks that growth will slow to a 2.4 per cent pace in the current October-December quarter.
The US avoided the Second Great Depression that seemed to be a real possibility. Much of the recent economic data suggest that the economy has bottomed out. Most risks are behind. The financial system has improved but it is not yet back to normal. The downturn has run its course. Housing sector finally seems to be improving. Much of the stimulus money remains to be spent and will add to growth as the year proceeds. It could take several years to return to full employment.
President Barrack Obama said late last week that the United States was recovering from deep recession and that hundreds of thousands of jobs had been created through massive investments.
The president cited the report on gross domestic product (GDP), pointing out that in the third quarter, GDP grew for the first time in over a year -- and faster than it has been in the previous two years. He said that the country was moving in the right direction.
The writer is an economist and columnist. He can be reached
at: syedjamaluddin22@yahoo.com