Sunday, December 10th, 2017

A recovery that still feels like a recession

Posted: Tuesday, May 22, 2012

Raymond J. Keating, Chief Economist

In recent days, Rasmussen Reports – a firm that provides some of the most interesting and valuable polling data around – has released the results from assorted survey questions about the state of the U.S. economy. For example:

• 62% of consumers believe the U.S. is still in a recession.

• While 33% of consumers see the economy improving, a notable 49% see it getting worse.

• Similarly, 35% of investors see an improvement in economic conditions versus 48% disagreeing with that assessment.

• Finally, in terms of which direction the nation is headed, 28% of voters say the right direction, while 65% say we’re on the wrong track.

How does this line up with the economy’s performance? Actually, when you look at the key numbers, these poll results are not the least bit surprising.

Consider GDP growth and job creation, for example.

The recession officially ended in mid-2009 – just about three years ago. But the problem is that when an economic recovery is as bad as the one we have been experiencing, it still feels very much like a long, extended recession.

Since mid-2009, real annualized GDP growth has averaged only 2.4 percent. We should be growing at more than 4 percent during a recovery, especially after such a sharp downturn from the end of 2007 to mid-2009.

As for jobs, according to the government’s household survey, from November 2007 to December 2009, employment fell by a staggering 8.9 million. Over the subsequent 28 months, job losses have only been cut to 4.7 million.

From that recent bottom on employment in December 2009 to April 2012, the U.S. added 4.2 million jobs, or an increase of 3 percent. That might sound pretty good, but when you compare it to where we could and should be, it’s a pathetic record.

Consider the previous big economic downturn in the early 1980s, and what happened afterwards. After employment hit bottom in December 1982 to April 1985, the U.S. added 7.9 million jobs, or an increase of 8 percent.

That is, over the same number of months, the U.S. added 7.9 million jobs in the early eighties, while we have added only 4.2 million recently. At the very least, we should be a million jobs short of wiping out the job losses from the Great Recession, rather than being 4.7 million short.

But considering that our economy and the number of employed are larger today, if we had produced jobs at the same rate over the past 28 months as we did during those 28 months in the eighties, we would have added 11 million jobs, that is, nearly 7 million more jobs than we have created. Those 8.9 million job losses would have been wiped out, and we would be in positive territory by more than 2 million jobs.

The difference is clear. In the 1980s, taxes were cut, deregulation occurred, and monetary policy was being refocused on price stability. That promoted risk taking, namely, entrepreneurship and investment, and boosted economic growth and job creation. Over the past several years, though, the focus has been on bigger government, higher taxes, and loose monetary policy. That has restrained risk taking, and therefore, limited economic and employment growth.

Hence, we have a recovery that feels very much like an incredibly long recession.