Sunday, March 7, 2010

"Normalcy" restored in the US economy?

Interesting graphic by Floyd Norris, which appears to indicate the US economy returning to normalcy, with some of the standard indicators of economic and financial volatility becoming subdued.

Fundamentally, these charts only indicate that the worst may be over and further declines are not likely. However, they do not make a quick recovery inevtiable. In fact, they tell very little about any recovery, except the optimism that a recovery could be round the corner. And L-shaped recovery is still possible. And there is also the possibility that the stimulus contributed to bringing in "normalcy", and now that is tapering off (federal government hirings continue to grow whicle local governments continue to shed payrolls), there could be further volatility.

The February labor report indicates that though the economy lost only about 36,000 jobs in the month, the unemployment rate remained unchanged at 9.7%, lending credence to the impression that the economy is getting "worse much more slowly".

There are enough signs in the job report to indicate that the recovery may even be losing steam. See this graphic that puts the post-war recessions in perspective

With nearly 15 million Americans unemployed in February, four in 10 unemployed for six months or longer, and the so-called underemployment rate (which counts people whose hours have been cut along with those working part time for lack of full-time positions) at 16.8% (up from 16.5% in January), current growth and recovery trends will do little to make a serious dent in the unemployment situation for many years. See also this and this. Mark Thoma has this link summary.

The CBO's analysis of the Budget and Economic Outlook (presentation here) reveals the following (unemployment rate first and potential-actual GDP output gap next)

See also a nice interactive graphic of the projections of government deficits under different scenarios here.

Update 1 (10/3/2010)
See this presentation by the CBO director on the fiscal policy options for the US. It projects that the public debt is on a trajectory that poses significant economic risks and becomes unsustainable and the key choices for medium-term and long-term policy are how quickly and in what way to restrain federal borrowing. It also forecasts a slow economic recovery due to financial market fragility, restrained increase in household spending, and declining support from monetary and fiscal policy as the stimulus wears out.

Update 2 (1/6/2010)
The recession has taken a much greater toll, in general, among the black population, as reflected in the much larger extent of job losses.

A recent Federal Reserve study estimated that for every dollar of wealth owned by a white family, a black or Latino family owns just 16 cents. The Economic Policy Institute’s forthcoming "The State of Working America" analyzed the recession-driven drop in wealth and found that as of December 2009, median white wealth dipped 34 percent, to $94,600 while the median black wealth dropped 77 percent, to $2,100.

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