USA Today: Our View on the Great Recession: Don't Look Now, But the Economy's Bouncing Back

For Immediate Release:

April 15, 2010

Contact:Katie Grant
Stephanie Lundberg
(202) 225 - 3130

 
ICYMI, wanted to make sure you saw today’s editorial in USA Today about how the economy is showing broad signs of recovery.  Read the editorial here, or below.
 
 
Our View on the Great Recession: Don't Look Now, But the Economy's Bouncing Back
 
In the past two years, good economic news has been about as rare as a hedge fund manager on food stamps. But guess what? The most recent data show real signs of recovery. Some 162,000 jobs were created last month, the best showing in three years. Housing prices have stabilized. Retail sales are up. Corporate profits look better. And the stock market has surged since its bottom in March 2009.


Yet much of the commentary from economists, government officials and financial pundits is that the nation faces, at best, a slow and unsatisfying rebound.


Call it the springtime of our discontent. The job gains, we are told, are too modest. Housing prices will fall again. The economy will sag when the fiscal and monetary stimulus ends and interest rates rise. Consumers and governments have too much debt.


All these arguments have some validity. But there is reason to believe that the predictions of prolonged stagnation err on the side of pessimism.


Much of the negativity can be explained by what might be called rearview mirror syndrome. Lacking crystal balls, and dealing with ambiguous data, forecasters and the public naturally see the recent past and present as a guide to the future. The problem is that past trends tend to continue — until they don't. Then the conventional wisdom, now so gloomy, quickly and belatedly shifts.


Federal Reserve Chairman Ben Bernanke said last week that the economy was "far from being out of the woods." (He was a little more optimistic Wednesday in testimony to Congress' Joint Economic Committee.) It's easy to see why Bernanke might say this. We've been in the woods so long, they are beginning to feel like home.


But not long ago, the Fed chairman had a hard time seeing that we were in the woods. In February 2008, he told Congress that the economy would avoid a recession. It was later determined that it had already been in recession for two months at that point.


By June of that year, when it was clear that the economy was sagging, then-Treasury Secretary Henry Paulson said he was "moderately optimistic that at the end of the year, we will have signs of an economic recovery." That was one crash and 7.5 million jobs ago.


As a general rule, the faster and further the economy falls, the more robust the recovery. And vise versa. The past two recessions, in the early 1990s and in 2001, created fairly anemic job recoveries. But the unemployment rate never got very high in those downturns. It was 6.8% at the end of the first and 5.5% at the end of the second, versus 9.7% now.


Before the current recession, the only other time since the Great Depression when the unemployment rate topped 10% — in fact, the only time it topped 9% — was the recession of the early 1980s. As the graphic accompanying this editorial shows, the comparisons between the two are almost eerie. The unemployment rates, beginning in early 1982 and early 2009, rise in tandem for about a year and then plateau.


The stock market, which is often a harbinger of future economic activity, behaved similarly as well. The 60% run-up starting in June 1982 looks a lot like the current bull market.


If the comparisons continue, the recovery could well be stronger than the conventional wisdom suggests. By December 1983, the unemployment rate had dropped to 8.3%, whereas the Fed sees 9.3% to 9.7% at the end of this year.


Part of the pessimism is explained by the politics of the moment. Republicans, of course, are loath to give President Obama any credit for anything. Democrats don't want to appear insensitive to the unemployed, or to crow too soon. Economists want to be cautious because substantial risk remains.


In any event, virtually each day brings better news on the economic front. This isn't to say that a robust national recovery is guaranteed, that huge regional disparities don't exist, or that storm clouds — mainly in the form of excessive government debt — aren't on the horizon.


But an objective look at the evidence indicates that the green shoots of economic recovery are blossoming nicely.
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