Thursday, April 9, 2009

When will recovery start?

I have blogged here, here and here on the debate speculating about when the global economy would start its recovery. Ben Bernanke in a recent interview expressed his belief that he is seeing "green shoots" showing up in the economic landscape. James Galbraith described it as "compulsive optimism", an example of "grasping at straws", and advocated repressing such beliefs.

The graphic from NYT shows that since the Great Depression, the US economy's industrial production capacity have dipped this low only once in the early 1980s.

It is estimated that the economy is running at a shortfall of more than $1 trillion in annual sales and other transactions, and it may be sometime before the economy is back to normalcy and its full production potential (it took the US economy seven years to recover after the 1981-82 recession). Manufacturers are using less than 68%of the nation’s factory capacity, the lowest level since records were first kept in 1948. Excess capacity, once entrenched, perpetuates itself - companies cannot hire workers to make more goods and provide more services until their sales go up, and people can’t buy goods and services until they are hired.

The unemployment gap is substantial, and would require many years to get back to normalcy. The notional unemployment figure of 8.5% tells only part of the story. The BLS reports that more than 24 million men and women, or 15.6% of the labor force, are either hunting for work or working fewer hours than they would like to work, or are too discouraged to seek work, although they would take jobs if offered them. The ranks of this "underutilized" group — the bureau’s label — are up by 10 million since early last year. Generating work for so many people would take several years, even if the nation’s employers began hiring robustly.

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