If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.
Given the tumult of the Great Recession, this may be hard to believe. However, the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. Moreover, growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009.
“It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession,” RDQ Economics senior economist Conrad DeQuadros said.
When the last downturn hit, the credit bubble left Americans with lots of fat to cut, but a new one would force families to cut from the bone. Making things worse, policymakers used most of the economic tools at their disposal to combat the last recession and have few options available.
Anxiety and uncertainty have increased in the last few days after the decision by Standard & Poor’s to downgrade the US’ credit rating and as Europe continues its desperate attempt to stem its debt crisis.
US President Barack Obama acknowledged the challenge in his Saturday radio and Internet address, saying the country’s “urgent mission” now was to grow the economy and create jobs.
“Our job right now has to be doing whatever we can to help folks find work to help create the climate where a business can put up that job listing; where incomes are rising again for people,” he said. “We’ve got to rebuild this economy and the sense of security that middle-class families have felt slipping away for years.”
In the four years since the recession began, the civilian working-age population has grown by about 3 percent. If the economy was healthy, the number of jobs would have grown at least the same amount.
Instead, the number of jobs has shrunk. Today the economy has 5 percent fewer jobs — or 6.8 million — than it had before the last recession began. The unemployment rate was 5 percent then compared with 9.1 percent now.
Even those Americans who are working are generally working less; the typical private sector worker has a shorter workweek today than four years ago.
Employers shed all the extra work shifts and weak or extraneous employees that they could during the last recession. As shown by unusually strong productivity gains, companies are now squeezing as much work as they can from their newly “lean and mean” work forces. Should a recession return, it is not clear how many additional workers businesses could lay off and still manage to function.
With fewer jobs and fewer hours logged, there is less income for households to spend, creating a huge obstacle for a consumer-driven economy.
Adjusted for inflation, personal income is down 4 percent, not counting payments from the government for things like unemployment benefits. Income levels are low and moving in the wrong direction: Private wage and salary income fell in June, the last month for which data was available.
Consumer spending, along with housing, usually drives a recovery. However, with incomes so weak, spending is barely where it was when the recession began. If the economy were healthy, total consumer spending would be higher because of population growth.