The American public has had lots of experience living through recessions. We have endured 11 over the past 60 years, but none since the end of World War II has been as deep or as long as this one. It has severely tested the optimism, confidence, and animal spirits that typify the temper of America.
People see that the administration has invested $5 trillion to reverse the recession and achieve growth again, and the Federal Reserve has pushed interest rates down to record lows. But it's like strenuously inflating a tire with a leaky valve. Whatever we do, it is soon soft again and now the air still seems to be hissing out, so we fear we will soon be riding on the rim. The only certain result is that we will be paying interest on this $5 trillion for decades to come.
American families are hurting. Just this month, the Federal Reserve reported that between 2007 and 2010 there was a massive decline of 39 percent in real median household net worth, dropping from $126,400 to $77,300, the lowest level since 1992. Two decades of cumulative prosperity for the average American family have been wiped out. The housing market hasn't reached anywhere near bottom, further threatening Americans' largest asset, their home equity. Banks still own 450,000 foreclosed properties on top of another 2 million units in the foreclosure process, and an additional 1.7 million homes are in some form of delinquency. Add to this the near record 3.6 million vacant units being held off the market for "unspecified reasons," and you have a huge excess supply that will be a dead weight on housing values for months to come.
Who has suffered the largest percentage of losses in both wealth and income? The middle class of America. The median family income of $49,600 in 2007 had by 2010 fallen to $45,800—and in the two years since 2010 such families have gotten poorer. The biggest reduction in net worth in percentage terms affected families headed by 35-to-44-year-olds, whose median net worth dropped 54 percent over the three-year period ending in 2010 and continues to decline to this day. So for most American families, especially the middle class, there has been no recovery at all.
The citing of economic statistics may be mind-numbing, but the gauge of GDP numbers reads shockingly low. Since the so-called recovery began in the second quarter of 2009, the Wall Street Journal has noted, annual GDP growth has averaged only 2.4 percent, and it has declined to 1.8 percent in 2012. Cumulative GDP growth for the past 11 quarters was just 6.8 percent, less than half the 15.2 percent average growth after previous U.S. recessions over a similar period of time, and the slowest growth rate of all the 11 post-World War II recessions.
By now we should be feeling the snap-back pull of the powerful rubber band seeded into the American economy as we did in the Reagan expansion of 1983. This time there is no pull. Instead, we are facing the third double-dip scare in the first three years of this unprecedented weak recovery.
As with income and GDP, so with jobs. It is harder to find work than it has been in any previous recovery period. Today there are 18 million people competing for just 3.7 million jobs. Job openings plunged this past April in the steepest collapse since September 2008. Eight million people have become so discouraged that they have left the labor force since the recession began. Without that critical wrinkle, the headline unemployment rate would be 12 percent. That rate has held at 8 percent or more for an unprecedented 40 months, on top of which this month the unemployed came to the end of 99 weeks of extended benefits.
As David Rosenberg of Gluskin Sheff has pointed out, it typically takes 25 months to close the employment gap from the employment peak near the start of the downturn. This time around, 52 months after employment peaked in January 2008, non-farm employment is still approximately 4 million below where it started.
Some 43 percent of the unemployed have been out of work for six months or longer, the highest level since the Great Depression. Roughly 50 percent of the jobs created have been part-time jobs without typical healthcare or retirement benefits. Less than a quarter of those hired from the graduating classes of 2006 to 2008 are working full time. The number of workers claiming disability in 2000 was 5 million—now it is 9 million. For the same period, the number of food stamp recipients has increased from about 20 million to 45 million. Consumer confidence stands at 64.9;—the historical average in expansions is 102 and in recessions 78—that's 13 points below the norm of a typical recession.
In effect, we are living with the statistics that mark a modern-day depression, hardly befitting the third year of an alleged recovery. There is little to show for a government stimulus of over $1 trillion a year for more than three years, a zero percent Federal Reserve rate policy, and a dramatic expansion of the money supply. We might say it could have been worse, but we still face secular headwinds from debt-burdened household balance sheets, eroding household-related wealth, structural unemployment, and the retrenchment in state and local government.
Part of the explanation lies in the administration's hostile attitude toward business, symbolized by the political and regulatory uncertainties best captured by President Obama's rushed healthcare bill which, according to studies by researchers at Stanford and the University of Chicago, produced an estimated loss of 2 million to 2.5 million jobs. Add to that the failure to reach an agreement to deal with our long-term deficits and you can understand the atmosphere in which businesses are less willing to invest and individuals are less willing to spend. No wonder 83 percent of voters in a Fox poll in April said they thought the country was still in a recession, and no wonder they can't understand why the president said the private sector is "doing fine."
Obama naturally blames his predecessor, George W. Bush, and the Republican Congress for the nation's travails. But voters tend to decide to rehire a sitting president on the basis of his record of solving the nation's problems, not on the basis of pointing fingers and blaming others.
It brings to mind the old saw about never going to a doctor whose office plants have died. Obama's office plants are his programs to deal with the recession, and they simply have not worked. Only 16 states, led by Texas, have posted any job creation since the president took office, according to Rosenberg, and 9 of the 11 swing states have less employment now than when the 2008 election took hold. That is what makes President Obama so vulnerable.
- James Rickards: Why Obama's Deficit Spending Is Making Things Worse
- Check out the U.S. News Economic Intelligence blog.
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