As much as the political elite in the US and EU would like us to believe we ‘recovered’ from the great economic meltdown of 2008, so much of it is actually the reciprocal: unending declines in investor confidence, clipping of businesses, credit downgrades, social spending cuts, protracted unemployment, very minimal hiring, housing still puling the economy down, and the default predicaments haunting the EU.
All these seem to point to a double-dipped recession, although unsurprisingly, policy makers, especially the ones supporting wars abroad do not admit to this. It is reasonably to state that unemployment in the US is the biggest hindrance to a ‘real recovery’. For one, a high unemployment rate directly affects two things: without jobs, people dramatically cut their spending. As an effect, the government then spends billions to save these people from becoming destitute. This means a reduction in GDP, a tighter government budget, and more deficits. Although some sectors have recovered, such as the auto industry, they arrived at recovery via the layoff route.
Add to that the rise in oil prices this year due to the new Arab Spring and you get inflation back in the picture. Consumers spend even less when confronted with high prices: cotton price has gone up this year thus increasing the price of basic clothing by at least 20%, and the same goes for food like sugar, meat, and corn-based products.
Real estate and housing could be the real drag to US recovery from the 2008-2009 recession. Home equity continues to decline since 2006, so worse today than before that companies are tearing down unsold homes to avoid taxes. As a result, uncertainty in the housing sector also drags finance and net wealth sectors and most especially construction.
Also less obvious is the fact that non-financial companies are holding on to their stimulus money at near record levels, and the consumer is not far from doing so as well. What does this mean? This means that they are more nervous about the future, much like saving up for the stormy days, as they say.
Did we just record a 1.3% GDP growth and 9% unemployment this year? As such, it is hard to see whether Bernanke and his economists were too quick to declare the end of the economic meltdown. In addition to confidence, economic indicators really do point to a recession that really never ended.
On the one hand, as well all know, the NBER (responsible for calling the shot on the start and end of a recession) was unsure to declare that the 2008-2009 recession was really over during 2009. It’s been two summers since, and same as in 2010, this year, more people are convinced that we really didn’t recover and that we are headed to another disaster. Historically, it took the NBER almost 1 year to admit that the recession started in December 2007 and that it took almost 2 years to announce that the IT bubble of 2001 was over. Who knows when the NBER will announce the end of this present recession?