America’s rebound is slow, spotty and anemic. Can the economy get back to fighting weight?
Remember the recovery? It officially began way back in the middle of 2009, 18 months after the financial system--and then everything else in the American economy--fell apart. Given that nobody has gotten much of a raise since then and that unemployment is still above 8%, you'd be forgiven for not noticing that there's been a rebound--until, maybe, now.
In the past few weeks, signs of economic expansion have been everywhere. Factory managers' purchasing orders, one of the most closely watched economic indicators, reached a bullish six-month high in January. Weekly out-of-work claims have fallen to four-year lows; the stock markets (led by, of all things, banks) are rising; business and consumer-confidence figures are ticking up. And even housing permits hit a three-year high. The positive data prompted Mitt Romney--who plans to use the economy as a hammer against President Obama--to admit that things are improving for the 99%. "Whisper it," says Goldman Sachs chief economist Jim O'Neill, who's been bullish on America for some time now. "The U.S. economy is returning to normality."
But the definition of normality has changed a lot over the past two decades. Technically, we're in an expansion, since economic output has now eclipsed its 2007 peak. But practically speaking, we are in a never-never land of a recovery. Income growth is nonexistent, we still have a $3.7 trillion housing hole to dig ourselves out of, and we're 5.3 million jobs short of full employment. It's a recovery, all right--but not as we've ever known it.
Perhaps the best way to think of it is as a patchwork recovery, one that creates minibooms in mining hills, social-networking start-ups, auto factories, hospitals, railroads and convention centers but leaves vast swaths of the country untouched. The U.S. will likely grow 2.5% or more this year--but we are still far from the 3.4% average growth we have enjoyed for most of our post--World War II history. In statistical terms, says JPMorgan chief economist Michael Feroli, we are experiencing one of the slowest expansions on record. Which suggests an opportunity for some savvy bumper-sticker entrepreneur: HONK IF YOU'VE FELT THE RECOVERY.
Redefining Recovery
The fact is, each recovery since 1990 has been weaker, and taken longer, than the one before. According to the McKinsey Global Institute, in all the recessions from World War II to 1990, U.S. employment returned to prerecession levels roughly two quarters after GDP did. In the three recoveries since, though, there have been lengthening lags. At the current rate of job creation, it will take about 33 more months to restore the jobs lost in 2008 and 2009.
Much of the reason for that trend lies with the unalterable forces of globalization and technology-induced job destruction, which are speeding up and disrupting a greater range of white collar jobs as software and global broadband connectivity improve. (Insurance agents and X-ray technicians, your jobs are already being outsourced to India; paralegals, processing managers and investment analysts--you're next.)