Make us your home page
Instagram

Economic recovery still off in the distance

As we officially enter the second half of 2009, some stock taking is in order.

Has the economy hit bottom, and is the recovery about to begin?

Is it safe to get back into the stock market?

Is it time for businesses to stop cutting and start investing?

Can the government begin letting up on monetary and fiscal stimulus?

The right answer to all of these questions is probably "no."

Certainly the economy and the financial system are in much better shape than almost any of us would have predicted as the year began. At the same time, the midterm outlook is nowhere near as rosy as suggested by the consensus forecasts from Washington or the second-quarter rally on Wall Street.

Given the size of the credit bubble, the amount of overcapacity that was allowed to develop and the staggering amount of wealth that has been lost, it would be foolhardy to expect the recession to be so shallow or the recovery so robust.

Government policies, certainly, have helped to moderate the pace of the adjustment. But the process of de-leveraging balance sheets and getting spending in line with incomes is nowhere near complete. Until they are, unemployment will continue to rise, businesses will continue to fail, and the economy will alternate between growing slowly and not growing at all.

We got a hint of all of this Thursday when the government reported the loss of 467,000 more jobs, bringing the number of jobs down to where it was in March 2000. Stock markets here and around the world fell sharply on the news. And with tax revenue evaporating, some of the biggest states are being forced to curtail basic services and pay their bills with IOUs.

That's not to say there aren't some positive signs.

Monthly job losses have slowed, households have cut back on their debt, and some businesses have been able to float new issues of stocks and bonds.

Housing prices have begun to bottom out in some of the hardest-hit markets, and consumer confidence has recently improved.

Most significantly, stock prices — long viewed as a leading indicator — rebounded nearly 40 percent from their lows of early March before giving back some gains in the past two weeks.

One way to look at these developments is that they foretell a strong and sustainable recovery.

A more likely explanation, however, is that the economy has merely pulled out of a free fall, and that for the next several years it will oscillate between sluggish growth and modest decline until the necessary adjustments and rebalancing are completed.

The best hope for a sustained recovery may lie with a spurt of business investment in new technology that enhances productivity. And unlike growth driven by excess consumption and financial speculation, growth driven by investment, innovation and productivity has the added advantage of being more enduring and more widely shared.

Those qualities sound particularly attractive as we wind up a "lost decade" for the American economy — a decade in which, when measured by jobs, incomes and national wealth, we'll end up pretty much where we began.

Have a happy Fourth.

Economic recovery still off in the distance 07/03/09 [Last modified: Friday, July 3, 2009 7:05pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. To catch a poacher: Florida wildlife officers set up undercover gator farm sting

    Wildlife

    To catch a ring of poachers who targeted Florida's million-dollar alligator farming industry, state wildlife officers created the ultimate undercover operation.

    To catch a ring of poachers who targeted Florida's million-dollar alligator farming industry, the Florida Fish and Wildlife Conservation Commission set up an undercover operation. They created their own alligator farm, complete with plenty of real, live alligators, watched over by real, live undercover wildlife officers. It also had hidden video cameras to record everything that happened. That was two years ago, and on Wednesday wildlife officers announced that they arrested nine people on  44 felony charges alleging they broke wildlife laws governing alligator harvesting, transporting eggs and hatchlings across state lines, dealing in stolen property, falsifying records, racketeering and conspiracy. The wildlife commission released these photos of alligators, eggs and hatchlings taken during the undercover operation. [Courtesy of Florida Fish and Wildlife Conservation Commission]
  2. CBO analysis: 23 million would lose health coverage under House-passed bill

    National

    WASHINGTON — The Republican health care bill that passed the House earlier this month would nearly double the number of Americans without health insurance over the next decade, according to a new analysis by the nonpartisan Congressional Budget Office.

    Demonstrators protests the passage of a House Republican health care bill, outside the the Capitol in Washington, on May 4. The House took the unusual step of voting on the American Health Care Act before the Congressional Budget Office could assess it. That analysis was released Thursday and it showed the bill would cause 23 million fewer people to have health insurance by 2026. Many additional consumers would see skimpier health coverage and higher deductibles, the budget office projected.
  3. Florida Specialty Insurance acquires Pinellas Park's Mount Beacon Insurance

    Banking

    Tens of thousands of homeowners who were pushed out of Citizens Property Insurance for a private carrier since 2014 are finding themselves changing insurance companies yet again.

  4. Marijuana extract Epidiolex helps some kids with epilepsy, study shows

    Health

    A medicine made from marijuana, without the stuff that gives a high, cut seizures in kids with a severe form of epilepsy in a study that strengthens the case for more research into pot's possible health benefits.

    An employee checks a plant at LeafLine Labs, a medical marijuana production facility in Cottage Grove, Minn. [Associated Press (2015)]
  5. St. Pete Economic Development Corporation lures marketing firm MXTR to town

    Economic Development

    St. Petersburg Economic Development Corporation has lured its first big catch to St. Petersburg — MXTR Automation. The digital marketing company announced Wednesday that it will fill 20 "high-wage" creative positions within the next 18 months, as well as open an office in downtown St. Petersburg this year.