The Dow went above 11,000 earlier this week for the first time since 2008. Today we find out that consumer spending rose in March. Unemployment is holding steady. Last month the we actually gained jobs. Not enough to bring down the unemployment rate but enough so the unemployment rate held steady. The Commercial Real Estate market didnt tank as was feared about 6 months to a year ago. And this article from the NY Times last week sounds like it’s arguing for a “V shaped” recovery.
This is all good news. I’m not going to argue that. But, we’re not out of the woods and the likelihood of a V Shaped recovery is very slim. The Great Recession is not over. We may not be in for an “L Shaped” recovery but we’re not going to hit a major rebound any time soon.
FYI, an L Shaped recovery is like what happened to Japan in the 90’s. Basically, this happens when the economy tanks, then stays flat over a long period of time. A V-Shaped recovery is when there is a sharp dive then a sharp uptick in economic activity and a U-Shaped recovery is more like what we’re experiencing right now. A dive, bottoming out, then a long, slow recovery. Then there is the dreaded W-Shaped recovery. This is what I’m most concerned about. A W-Shaped recovery is when there is a dive, then the economy begins to recover, then takes another dive. This happened in 1937 (as you can see in this lovely graph from Wikipedia) and it could happen again now.
As you can see in this lovely graph
We have a hell of a lot of ground to make up. Millions of jobs have been lost, household debt is at 94%, and with productivity having gone up 5% last year, employment may not come down any time soon. The other thing about unemployment is that it might go up before coming back down. That’s because unemployment as a statistic measures job seekers. It does not measure the number of people who have stopped looking. As the economy improves more people who had stopped looking for work will start looking agin. They will be counted in the unemployment numbers causing unemployment to go up. To keep up with population growth the US economy has to add over 100,000 jobs a month. When the economy tanked, we lost 8 million jobs. In order to even come close to breaking even the economy would have to add more than 500,000 a month. That clearly is not going to happen. To break even in 3 years the economy would have to add more than 300,000 a month. That isnt going to happen either. Ezra Klein had a good interview with a liberal economist yesterday about whether or not the recession is over.
It’s a lot of gloom and doom for such a lovely April day. It’s lovely here in Oregon at least. If it were up to me I’d put people to work in a WPA style program. The WPA didnt just employ people for manual labour but employed artists too. Timberline Lodge in Oregon is a beautiful example of artists contributions to the WPA. I’d put people to work building typical infrastructure projects, roads, bridges, national parks, that kind of thing. In the UK they are using tidal energy to make electricity. It’s kind of like taking a wind turbine, turning it upside down, and plunking it into the Ocean. We could put people to work building solar energy plants and why in the world do we need China to come to the US to build high speed rail?
Unfortunately, it isnt up to me. But we have a long slog before this country is out of the woods economically.