Why the 'Recovery' Is Taking So Long

[one...two...tree 2,762]

By Rick Newman, USA Today

If the economic recovery seems like a mirage, you're not imagining things.

The data show that the economy has stopped shrinking and started growing, which is good news no matter what. Economists broadly agree that the recession probably ended last summer, which means things ought to be getting better. Yet jobs are still scarce, the housing bust continues, consumers and businesses remain skittish, and many families are barely muddling through. "It's a recovery, yes," says Nariman Behravesh, chief economist for forecasting firm IHS Global Insight. "But it sure doesn't feel like it."

Part of the reason for the slow-motion recovery is the depth and nature of the recession that preceded it. A Federal Reserve study of the past three recessions found that employment, income, spending, stock prices, home values, and wealth all fell much more sharply during the 2007-2009 recession than after the downturns of 2001 or 1991. Loan delinquencies and bankruptcies, correspondingly, rose much faster. That leaves a lot of damage to repair.

The economy also takes longer to recover from recessions these days, like an aging patient who requires more time to bounce back from an injury in his 50s than he did in his 20s. It's not entirely clear why, but technology and globalization probably allow companies to wait longer before they start hiring American workers after a spate of downsizing, which in turns dampens confidence and spending. Here's how long it took for the unemployment rate to peak and start declining after the recessions that ended in the following years:

--1982: 1 month

--1992: 15 months

--2001: 19 months

--2009: ???

Economists aren't sure yet what month the latest recession ended, but August 2009 is a good guess. If the recovery matches the pace from the early 2000s, the unemployment rate, now 9.7 percent, would continue to drift higher for another year, and not start to come down until early or mid 2011. And it could take longer.

A few things are going right. Corporate profits are strong--thanks to all the layoffs and cost-cutting of the last two years--which means companies are in a good position to hire once they're confident that the economy is getting stronger. Interest rates are low, energy prices are manageable, inflation isn't a problem, and the stock market rally has restored some wealth for people lucky enough to have an investment portfolio. But that's not enough. Here are six of the most stubborn problems preventing a more robust recovery:

Weak credit. Banks are working through trillions in bad loans and slowly getting healthy again. But virtually every kind of lending--for homes, cars, credit card purchases, small businesses, and even big corporations--remains depressed. And tight credit slows many other kinds of economic activity, since consumers and business typically can't make big purchases with cash. Behravesh says lending could pick up by late this year or early next year--although that would probably be the point at which the Federal Reserve starts to raise interest rates, to subdue inflation.

Stagnant income. After falling during the recession, incomes are inching up, but few are feeling flush these days. A glut of unemployed workers is likely to depress wage growth for years, which will keep companies' costs low but consumers' wallets thin. And of course many households with a laid-off or underemployed family member are getting by on far less income. The only real boost to incomes has come from government subsidies, and many of those were temporary stimulants that are set to expire.

Tepid spending. Consumers have surprised economists recently by spending more and saving less than expected. But the splurge probably won't last. Temporary incentives like unusually aggressive deals on cars in March and the soon-to-expire tax credit for home purchases could be pulling forward sales that might otherwise have happened later in the year. And with many households still paying down debt and trying to rebuild wealth lost in the housing bust, savings seem certain to rise well above the 3.1 percent rate they're at now. That means demand for cars, homes, appliances, and nonessential products--which constitute a huge chunk of the economy--will stay weak for a long time.

Dismal confidence. Americans remain gloomy, which most consumer-confidence surveys showing only modest improvements from the low points hit during the recession. The most obvious reason is the weak job market and a sense that the end of the recession will be followed by a prolonged period of malaise rather than a crisp rebound. Businesses aren't much cheerier, since many are struggling to get loans and increase revenue, instead of just cutting costs. Deep doubts about the recovery mean that businesses are likely to hire very slowly, and consumers, when in doubt, will save rather than spend.

Reeling real estate. The epic housing bust that triggered the whole recession is moderating, but it still isn't over. Moody's Economy.com predicts that house prices, which have fallen more than 30 percent from their 2006 peaks, could still fall another 5 to 10 percent through the end of this year. A housing rebound isn't likely until 2011 at least. Foreclosures are likely to keep rising this year, and the end of several government programs meant to boost housing could worsen the situation. The continued fall of home prices will further gnaw at Americans' net worth and depress a sector that accounts for about 15 percent of economic activity. The commercial real-estate market is also in lousy shape, with thousands of overbuilt properties and rising loan defaults stressing many regional banks.

Scarce jobs. It all comes down to jobs, and a pickup in hiring is likely to be painfully slow. The latest data show that layoffs have largely abated--but the damage from the recession is profound. About 8 million jobs have disappeared since the end of 2007. More than 15 million Americans are out of work, with many others working less than they want. "An extraordinarily high share of unemployed workers have been idle for long periods of time," according to Moody's Economy.com. "It will take years for the millions of displaced workers to find their way back into the labor market." Others who are so discouraged that they've stopped looking for work will re-enter the labor force as the economy improves, which could push the unemployment rate back up over 10 percent, even with a net gain in jobs. Still, workers who have managed to stay employed until now will eventually start to worry less about losing their jobs, which will boost confidence and everything else that stems from that. Gotta start somewhere.

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[alienlovechild 75]

Pretty decent summary of where we are at with the economy.

[Mr. Big Dog 10,747]

Bull. The recovery is taking so long because rather than looking for a job, people collect benefits and gather at tea parties.

[I AM NOT THAT GUY 5,715]

Bull. The recovery is taking so long because rather than looking for a job, people collect benefits and gather at Bama foto-ops.

fixxored!

[luckytxn 2,264]

Usually when money has been spent on tries to recover from downturns it has prolonged recoveries.

[alienlovechild 75]

Bull. The recovery is taking so long because rather than looking for a job, people collect benefits and gather at tea parties.

You're claiming the tea party people who complain about taxes and government spending and are mostly unemployed deadbeats? Unemployment is highest for some minorities and the young yet they are aren't too prominent in those gatherings.

[Mr. Big Dog 10,747]

You're claiming the tea party people who complain about taxes and government spending and are mostly unemployed deadbeats? Unemployment is highest for some minorities and the young yet they are aren't too prominent in those gatherings.

You're awefully tense. Relax a bit.

[spookyturtle 9,466]

The recovery is taking so long because Bush really fuсked the country up bad.

[alienlovechild 75]

The recovery is taking so long because Bush really fuсked the country up bad.

Yeah, he made his puppet, Obama, concentrate on healthcare and most people didn't want while not fixing a thing on the economy. How many times must it said that healthcare was never part of the reason we had a recession but it was opportunity to push it through when people when desperate for anyone pay their bills for them?

We replaced a big spender like Bush with a big spender like Obama. There's your change.

[spookyturtle 9,466]

Yeah, he made his puppet, Obama, concentrate on healthcare and most people didn't want while not fixing a thing on the economy. How many times must it said that healthcare was never part of the reason we had a recession but it was opportunity to push it through when people when desperate for anyone pay their bills for them?

We replaced a big spender like Bush with a big spender like Obama. There's your change.

I'll take the money being spent in America instead of Iraq.

[alienlovechild 75]

I'll take the money being spent in America instead of Iraq.

Defense matters aren't the same as economic policies. No one claimed the Iraq War was going to boost our economy or make it more effective at least that wasn't major rationale I heard.

The money Obama is spending is increasingly loaned at interest from countries like China which will have ramifications long after our troops leave Iraq.

[Dan J 277]

Usually when money has been spent on tries to recover from downturns it has prolonged recoveries.

Economic recovery depends on people and companies spending money. Consumers and companies tend to save or cut spending as much as possible during a downturn. How do you think the private markets are going to on their own break the savings paradox when doing so is might be very risky?

Defense matters aren't the same as economic policies. No one claimed the Iraq War was going to boost our economy or make it more effective at least that wasn't major rationale I heard.

The money Obama is spending is increasingly loaned at interest from countries like China which will have ramifications long after our troops leave Iraq.

The Iraq war was suppose to cost $150 billion. A trillion dollars later, we are still there. Now that we have a situation that requires it, it would be nice to have had that money.

[spookyturtle 9,466]

Economic recovery depends on people and companies spending money. Consumers and companies tend to save or cut spending as much as possible during a downturn. How do you think the private markets are going to on their own break the savings paradox when doing so is might be very risky?

The Iraq war was suppose to cost $150 billion. A trillion dollars later, we are still there. Now that we have a situation that requires it, it would be nice to have had that money.

I agree. I would prefer that the money be spent here. That trillion would have come in handy.

[luckytxn 2,264]

The trillions that we will be spending on health care could have been really handy too.

[Mr. Big Dog 10,747]

Defense matters aren't the same as economic policies. No one claimed the Iraq War was going to boost our economy or make it more effective at least that wasn't major rationale I heard.

The money Obama is spending is increasingly loaned at interest from countries like China which will have ramifications long after our troops leave Iraq.

Two things:

1) Iraq was hardly a defense matter - despite what the administration then told the American people, there was no actual threat to our national security coming from Iraq. Invading and destabilizing Iraq has, however, contributed to emboldening Iran which does now turn into a national security issue.

2) The money Bush spent on Iraq was loaned at interest from countries like China all the same. Not one dime of it was actually paid for.

The trillions that we will be spending on health care could have been really handy too.

Will be? We've been spending trillions on health care for many years now.