WASHINGTON , Even if the U.S. economy avoids sliding back into recession, the continuing weakness is beginning to damage muscle and bone, inflicting long-term damage on many families and business that will make a full-blown recovery much harder to achieve.|By Don Lee, Tribune Washington Bureau
WASHINGTON , Even if the U.S. economy avoids sliding back into recession, the continuing weakness is beginning to damage muscle and bone, inflicting long-term damage on many families and business that will make a full-blown recovery much harder to achieve.
The devastating recession of four years ago struck a nation flying high on a housing boom and helium-inflated clouds of consumer spending. But the current slowdown is striking a nation already on its economic knees.
“That’s the danger right now: You’ve got an economy that didn’t recover,” said Ethan Harris, Bank of America’s chief economist for North America. “We’ve had some healing,” he said, noting that banks are in better financial shape as are some households.
“But the rehabilitation hasn’t been completed,” he said, and a relapse would be like “hitting an already sick patient.”
On Friday, Federal Reserve chairman Benjamin Ben S. Bernanke is expected to discuss the economic outlook and central bank’s role in the months ahead, but he is unlikely to announce any immediate policy changes despite widespread anticipation of new action.
And new numbers scheduled to be released Friday on overall economic growth are also not expected to brighten prospects.
What worries economists like Harris that an economy that shows little or no growth does more than inflict immediate pain. It inflicts damages and costs that will have lasting impact.
The last recession, the worst in six decades, cost the country about $2.5 trillion, including the government’s stimulus spending, losses at mortgage lenders Fannie and Freddie, and additional funds for unemployment benefits, according to Moody’s Analytics. And as the weak economy lingers, the tab to taxpayers will keep growing and put additional pressure on the already strained fiscal budget.
And the lost income, business opportunities and other private sector costs were far higher.
Looking forward, what concerns economists is the possibility that the growing disparity between the rich and everybody else will widen, that the nation’s entrepreneurial energy will be sapped, and that a generation of young workers whose earning power and confidence have already suffered will decline even more.
“These are things slowly undercutting the underlying resilience of the economy,” as Harris put it.
The likelihood of another recession has risen sharply since spring amid signs of deteriorating employment, manufacturing and business and consumer confidence , accompanied by wild swings on Wall Street.
Many analysts now see at least a one-in-three chance of a fallback into outright economic decline in the next six months or so.
U.S. gross domestic product in the first half of this year is now seen as having grown by even less than the tiny 0.8 percent rate previously estimated. A negative GDP rate, which measures the change in goods and services produced, would be one sign the nation is in recession, as would declining employment.
GDP expanded by 3 percent in 2010, but the size of the American economy still hasn’t caught up to where it was at the fourth quarter of 2007, when the great recession hit. And total payroll employment remains nearly seven million jobs shy of where it was at the end of 2007.
By comparison, China’s GDP has surged by more than 40 percent between 2007 and 2011, and economists at IHS now see the Chinese economy overtaking the U.S. in 2019 , much faster than what analysts were predicting only a few years ago.
The GDP comparisons are more than just academic. They also speak to economic clout and people’s living standards, which for many in the U.S. have been further eroded in the last few years.
Little by little, economists have been ratcheting down their forecasts for the rest of this year. Layoffs and new jobless claims have been climbing again. And with the housing market still depressed, state and local governments cutting back and industrial production wavering, it’s hard to see from where the U.S. economy could get a big lift.
Paul Dales, an economist at Capital Economics, says a second recession would most likely be mild and short, if for no other reason than that the “fat-purging process” already took place. During the Great Recession, many companies slashed payrolls and other costs, leaving them with lean inventories and much less excess staff and unused production capacity.
Take Darlene Miller, president of Permac Industries, a precision-machining shop in the Minneapolis suburb of Burnsville. Miller says her sales have returned to 85 percent of where they were before the recession. The firm has clawed back by becoming more productive and getting new certifications to build its aerospace and medical lines.
Over the long recovery, she has added just one net new employee, even though she cut a dozen positions during the recession.
Judging by her orders and surveys of other machining shops like hers, she doesn’t foresee a double-dip recession. But she’s ready. Not only is Permac operating leanly, she’s keeping a sharp eye on possible danger signs such as later payments from customers.
“We are better staged for it,” she said.
Many U.S. families also look better prepared. Overall they’re carrying less credit card and other debts. Many have curbed spending and are socking away more money.
But evidence suggests that the biggest beneficiaries of the economic recovery thus far have been individuals with higher incomes and better educations who were rewarded when stock prices rebounded and corporate profits rose , often to record levels.
In 2009 the top 5 percent of households had an average income exceeding $295,000, according to Commerce Department statistics. That compared with just under $79,000 for households in the middle.
The gap has increased by 26 percent over the last decade , and figures to grow even more if the economy stagnates or slips into recession.
“Everybody is going to suffer” in a downturn, “but the folks in the bottom will get creamed,” said Mark Zandi, of Moody’s Analytics.
David Linehan, 44, who lives in the Boston area, looks at the grey economic skies and is deeply worried about what might come to pass. When the last recession swept through, he lost his energy-trading job. When unemployment benefits ran out, he went through the $25,000 in savings. Finally, he cashed in the $15,000 in his 401(k) savings plan.
Last summer he landed a part-time job as a driver for a rental car company. He started at $8.50 an hour, without benefits. Since then, he has gotten a 30 cents an hour raise, but no additional hours. He continues to look for full-time work.
Any setback would be a disaster. “I’ve lost the cushion I had,” he said.
óóó
|
