How Bad Is This Economic Recovery?

Is what we're experiencing in fact the worst recession and subsequent recovery since the Great Depression?

The answer to that question is well stated in Is This Really the Worst Recovery Since the Depression?:

"If you’re looking for a way in which this business cycle does overshadow every other one since World War II, consider this: It’s not unusual to have a steep downturn and then a steep recovery. It’s also not unusual to have a shallow downturn and then a slow recovery.

But not since the Great Depression — also precipitated by a financial crisis — have we had a sharp downturn followed by a slow recovery. We lucked into the worst of both worlds."

The article has lots of interesting information comparing the average postwar recovery to the current one:

Chart shows change in each indicator from trough of business cycle to following peak. Numbers for current recovery refer to the change from the business cycle trough in June 2009 to the most recent month or quarter for which data are available. Categories measured in dollars are adjusted for inflation. Corporate profits were adjusted using the gross domestic product implicit price deflator.

"Economists often assert that we are in the worst recovery since the Great Depression. Are we?

Not technically, but it’s still unusually bad.

Certainly the economy is in an abysmal state, and we still have about five million fewer jobs than we had when the recession began in December 2007. But the level of economic activity is so low chiefly because the recession itself was so severe; indeed, on many economic indicators, the Great Recession was the deepest (and longest) downturn since the Great Depression.

Technically, though, economists use the word “recovery” (or “expansion”) to refer to the state of the economy after a recession ends. So judging the “recovery” would mean looking at how much the economy has improved since it reached that very deep trough in June 2009, or 38 months ago.

I calculated the percentage change, from business cycle trough to business cycle peak, for a handful of economic indicators in all the previous postwar recessions, and compared those to the track record for the current recovery.

This isn’t an entirely fair comparison, of course, since (hopefully) the economy has not yet peaked and will continue to expand. . . .

Even if the current recovery gets beat out on most negative superlatives by at least one other earlier recovery, it is still much worse than the typical recovery of the last six decades.

For example, as you can see in the chart at the top of this post, in the average recovery private residential investment — that is, housing — grew 24 percent. This time around, it grew 8 percent.

The gap is about the same for consumer spending and overall gross domestic product growth. Export growth has been slower, but then so has import growth.

Usually payrolls grow 15 percent from trough to peak over the course of a business cycle. So far in this recovery, they have grown only 2 percent. . . .

The only major metric I looked at wherein today’s recovery outperformed the average expansion of the previous 60 years was corporate profits.

In the average postwar recovery, corporate profits rose 38 percent from trough to peak. So far into this recovery, they have risen 45 percent.

That is not the largest increase of any postwar expansion, as the recoveries that lasted from November 1982 to July 1990 and from November 2001 through December 2007 both saw corporate profits increase by more than 60 percent."

Summing Up

This economy stinks and will for several more years at least.

That said, companies continue to turn in solid profits. Hopefully, the economy will manage to keep its head above water and continue to grow, albeit perhaps slowly for some considerable period of time.

Even so, the current weak economic recovery could eventually develop into a solid and a very long lasting non-inflationary one accompanied by a resurgence in American worldwide competitiveness.

I'm also expecting that North American energy independence will become a reality over time as well.

And that we'll successfully address our debt and deficits issues beginning in 2013.

All that makes me somewhat cautious about the short term but very optimistic down the road.

At least that's my view.

Thanks. Bob.