Skip to main content

The Globe and Mail

U.S. recovery sighted ... but it's not so pretty

Some time in the next few months the world's largest economy will stop shrinking and start growing again.

That is, of course, good news for the United States and the rest of the world.

Macroeconomic Advisors, a St. Louis-based economic consultant that specializes in tracking the components that make up gross domestic product, expects the economy to shrink just 0.1 per cent annualized in the second quarter and grow at a decent 2.4-per-cent clip in the current quarter.

Story continues below advertisement

Others are less upbeat. New York University economist Nouriel Roubini, who's been dubbed Dr. Doom because of his generally gloomy outlook, says growth won't turn positive until 2010.

Reaching that critical juncture, whenever it comes, doesn't mean the recession is over.

GDP is only one piece of the puzzle.

The National Bureau of Economic Research (NBER) - the official arbiter of U.S. cycles - focuses on four other key indicators: personal income, retail sales, industrial production and employment.

All four of these measures remain weak, and remarkably fragile.

Retail sales and incomes have turned positive, but they've been temporarily propped up by stimulus spending and extended jobless benefits. Industrial production and employment continue to fall, albeit at a slower pace than earlier this year.

Take, for example, weekly jobless claims - an indicator of the newly unemployed. Claims peaked at the end of March at 674,000, and have fallen steadily to 522,000 in the week ended July 11. During past recessions, drops of this magnitude have often been followed by recovery.

Story continues below advertisement

The problem with employment is that it isn't a very good predictive indicator. It's really, at best, a coincident indicator, and perhaps a lagging indicator. Jobs are often the last part of the economy to see a pickup, and there's considerable evidence that we are headed for the same kind of jobless recovery that marked the end of the 1980-82 recession.

The biggest problem for the United States is the sheer depth of this recession, which the NBER estimates began in December, 2007, or more than 18 months ago. Digging out of such a large hole will take time.

Mr. Roubini, for example, has warned that the United States may be looking at two very slow years, of perhaps just 1 per cent GDP growth. He worries about the "debt overhang" of households and banks, and the rapidly growing debt of the U.S. government.

One thing seems abundantly clear. We are unlikely to experience what economists call a V-shaped recovery, where pent-up demand comes roaring back, quickly lifting an economy out of its funk.

Consumers make up more than two-thirds of the economy. And right now, Americans are building up their savings and lowering their debts, which is a good thing. But in economic terms, it's a drain on GDP.

And it's hard to figure out what will get consumers fired up again.

Story continues below advertisement

With all the excesses of the past decade - the homes, cars, gadgets and big debts - it may take years before people resume spending at a healthy clip.

The boom was built on easy credit, rapidly rising real estate prices and a bull market.

Now, credit is tight. Home prices are still falling. And the stock market remains a long way from the lofty highs of last year.

The good news is that the U.S. economy is among the most adaptive in the world. Unlike Japan, which experienced a decade of weakness after the bursting of its bubble at the end of the 1980s, the United States is getting a makeover. The reaction from banks, the government and individuals has been relatively quick, and for the most part, rational. Individuals and companies are de-leveraging. The federal government is bulking up on debt.

The process isn't always pretty. But it is working.

Mass foreclosures are driving down house prices to more affordable levels.

Plunging car sales have forced car makers to reduce production capacity to a sustainable level. And government transfers are mitigating the pain.

So, yes, this summer could well prove to be a turning point.

Recessions typically last no more than 18 months, and we've reached that milestone.

But don't pop the champagne corks just yet. There's still a long way to go.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles as we switch to a new provider. We are behind schedule, but we are still working hard to bring you a new commenting system as soon as possible. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to