Difficult Recovery

This is not your father's recovery
By Daniel Gross in Slate Magazine

The Great Recession, which rolled over our financial lives is most likely over. Home sales, while still far below the levels of a year ago, have risen for three straight months—a first since 2004. The stock market has rallied 44 percent since March, thanks to renewed optimism and improving earnings from big companies like Goldman Sachs and Apple. In June, seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward, including manufacturing hours worked and unemployment claims. Macroeconomic Advisers, the St. Louis-based consulting firm, says the economy is expanding at a 2.5 percent annual rate in the current quarter. Economic activity "will increase slightly over the remainder of 2009," Federal Reserve Chairman Ben Bernanke told Congress.

Irrational exuberance it's not. But even stagnation would be an improvement over recent history. The U.S. economy shrank at nearly a 6 percent annualized rate between September 2008 and March 2009, a shocking slowdown that pitched the global economy into recession for the first time since World War II. But when economists proclaim a recession over, they're celebrating a technicality: They mean economic output has stopped contracting. And while that is good news, you might wait a while before adding Judy Garland's rendition of "Happy Days Are Here Again" to your iPod.

GDP growth alone can't feed a family or pay a mortgage. Cursed with a high national debt load and blessed with a dynamic, growing work force, the U.S. economy needs annual growth of at least 1.5 percent just to feel like we're standing still.

Worse, the data point that means the most to our psychological well-being—unemployment—is likely to keep climbing. The loss of 6.5 million jobs since December 2007 has spurred the sharpest rise in the unemployment rate since the 1930s. As manufacturing jobs move overseas and companies struggle to further reduce costs, unemployment—which stands at 9.5 percent—is likely to rise above 10 percent.

Having survived a near-death economic experience, Americans now need to focus on surviving what's likely to be a pokey, painful recovery. "I see 1 percent growth in the economy in the next few years," says New York University economist Nouriel Roubini. "It's going to feel like a recession, even when it ends." Shifting our unwieldy $14 trillion economy from rapid reverse into neutral took heroic efforts from the Federal Reserve, the Treasury Department (in two administrations), two sessions of Congress, and, of course, the taxpayers. But the greater challenge may be getting the economy to start growing at a pace that creates jobs, boosts incomes, and raises corporate profits—all without triggering inflation.