Polls: Americans See Recovery a "Long Way Off," Economy Still Worsening
Gallup, USATODAY:
Americans See Economic Recovery a Long Way Off
Two-thirds (67%) believe it will be two or more years before recovery starts
Americans are thinking in terms of years, not months, when pondering how much longer it will be before the U.S. economy starts to recover. The vast majority (67%) believe it will be at least two years before a recovery starts, and nearly half (46%) think it will be at least three years.
...Bottom Line
The American public seems braced for a long road to economic recovery. Not only do most Americans expect to wait two or more years for a recovery to start, but the majority continue to believe the economy is getting worse. While such pessimistic views could help Obama in terms of keeping the expectations bar low, now that he is entering his second year, Americans are likely to increasingly judge his performance on the economy by his own economic policies.
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It probably all comes down to what one's definition of "Recovery" is. If you are part of the upper 2% in the world, or are a professional stock trader, then yes, economic recovery is most certainly at hand. Heck, there may have never been a recession in your world, to begin with.
I tend to think most regular folks consider an economy to be in recovery only when consistent job growth starts, and this is probably a really good definition. And just because a recession has ended does not by definition mean that a recovery has begun. Because of this, I think a look at prior recessions-jobs recoveries is a good exercise, and the Boston Fed has done some research for us:
Prospects for Employment: Evidence from Prior Recoveries
As we begin a new year, financial markets are in a much better state than they were a year ago. Interest spreads reflecting a “panic premium” on risk have narrowed to more normal levels, markets have resumed much more normal trading patterns, and the Federal Reserve is likely to be able to wind down many of its emergency lending facilities without any adverse impacts, as soon as next month - as the Federal Open Market Committee affirmed in its statement last month.
But despite the improvement in financial conditions, the recovery in the real economy has proceeded more slowly - with the declines in the first half of 2009 turning to slow but positive growth in the third quarter, and what appears to be stronger growth in the fourth quarter. This is resulting, in part, from firms less aggressively cutting inventories as their sales prospects improve.[Footnote 1]
In sum it seems to me that growth will be positive, but slow enough that unemployment remains much higher than I would like. I would be happy if in hindsight it is clear I have been too pessimistic. But as I see it, the economy faces three significant “headwinds.”
First, while the banking crisis has passed, banking problems remain. Most economies that experience significant banking problems have been slow to recover, and that is likely to be true this time in the U.S. Loans at banks have declined over the past several quarters, as many businesses are constrained by their balance sheets and reluctant to take on new debt.[Footnote 2] Many banks are also concerned with their balance sheets - and particularly their capital ratios[Footnote 3] -- and have restrained their terms of lending to avoid taking on too much additional risk, given that they are still working through problems with existing loans.
Second, consumers and businesses will likely remain cautious - which is consistent with positive but slow growth. Consumption will continue to be subdued, as consumers are fully aware that housing prices are well off their peak, unemployment rates are high, and home foreclosures are continuing. Consumer caution and the desire to rebuild savings will likely result in some increase in the savings rate, which is of course good in the long run but dampens growth in the short term. Many businesses seem likely to only gradually expand investment, at least until they are more confident that the economy will continue expanding even after some of the stimulative government support winds down. Also, many businesses may be limited in how much external funding they can raise.
The third headwind involves the fact that recessions this severe have broader ramifications for labor markets. Workers become discouraged and leave the labor force, while the skills of workers that are unemployed for long periods may atrophy, and new entrants in the labor market often have to settle for jobs at levels below what they would be offered in a more robust economy.
Indeed, to most Americans, economic prospects are better measured by an expansion of jobs rather than growth in GDP. So I would like to spend the rest of my time with you reviewing some of the patterns we have seen in labor markets during early stages of previous recoveries. Of course, given the severity of this recession, consumer and business behavior this time may be somewhat more restrained than in past recoveries.
To reveal a bit of the “punch line,” my conclusions from the analysis I am about to walk through are that the employment response in the last two recoveries was much slower than it was in the two earlier recoveries in the 1970s and 1980s.[Footnote 4] And unfortunately the financial headwinds, lingering labor market problems, and a cautious attitude of consumers and businesses in the wake of the financial crisis make it likely that recovery in employment terms will also be slow this time.
Figure 2:
Employment Growth in First Year of Recovery
Americans See Economic Recovery a Long Way Off
Two-thirds (67%) believe it will be two or more years before recovery starts
Americans are thinking in terms of years, not months, when pondering how much longer it will be before the U.S. economy starts to recover. The vast majority (67%) believe it will be at least two years before a recovery starts, and nearly half (46%) think it will be at least three years.
...Bottom Line
The American public seems braced for a long road to economic recovery. Not only do most Americans expect to wait two or more years for a recovery to start, but the majority continue to believe the economy is getting worse. While such pessimistic views could help Obama in terms of keeping the expectations bar low, now that he is entering his second year, Americans are likely to increasingly judge his performance on the economy by his own economic policies.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
It probably all comes down to what one's definition of "Recovery" is. If you are part of the upper 2% in the world, or are a professional stock trader, then yes, economic recovery is most certainly at hand. Heck, there may have never been a recession in your world, to begin with.
I tend to think most regular folks consider an economy to be in recovery only when consistent job growth starts, and this is probably a really good definition. And just because a recession has ended does not by definition mean that a recovery has begun. Because of this, I think a look at prior recessions-jobs recoveries is a good exercise, and the Boston Fed has done some research for us:
Prospects for Employment: Evidence from Prior Recoveries
As we begin a new year, financial markets are in a much better state than they were a year ago. Interest spreads reflecting a “panic premium” on risk have narrowed to more normal levels, markets have resumed much more normal trading patterns, and the Federal Reserve is likely to be able to wind down many of its emergency lending facilities without any adverse impacts, as soon as next month - as the Federal Open Market Committee affirmed in its statement last month.
But despite the improvement in financial conditions, the recovery in the real economy has proceeded more slowly - with the declines in the first half of 2009 turning to slow but positive growth in the third quarter, and what appears to be stronger growth in the fourth quarter. This is resulting, in part, from firms less aggressively cutting inventories as their sales prospects improve.[Footnote 1]
In sum it seems to me that growth will be positive, but slow enough that unemployment remains much higher than I would like. I would be happy if in hindsight it is clear I have been too pessimistic. But as I see it, the economy faces three significant “headwinds.”
First, while the banking crisis has passed, banking problems remain. Most economies that experience significant banking problems have been slow to recover, and that is likely to be true this time in the U.S. Loans at banks have declined over the past several quarters, as many businesses are constrained by their balance sheets and reluctant to take on new debt.[Footnote 2] Many banks are also concerned with their balance sheets - and particularly their capital ratios[Footnote 3] -- and have restrained their terms of lending to avoid taking on too much additional risk, given that they are still working through problems with existing loans.
Second, consumers and businesses will likely remain cautious - which is consistent with positive but slow growth. Consumption will continue to be subdued, as consumers are fully aware that housing prices are well off their peak, unemployment rates are high, and home foreclosures are continuing. Consumer caution and the desire to rebuild savings will likely result in some increase in the savings rate, which is of course good in the long run but dampens growth in the short term. Many businesses seem likely to only gradually expand investment, at least until they are more confident that the economy will continue expanding even after some of the stimulative government support winds down. Also, many businesses may be limited in how much external funding they can raise.
The third headwind involves the fact that recessions this severe have broader ramifications for labor markets. Workers become discouraged and leave the labor force, while the skills of workers that are unemployed for long periods may atrophy, and new entrants in the labor market often have to settle for jobs at levels below what they would be offered in a more robust economy.
Indeed, to most Americans, economic prospects are better measured by an expansion of jobs rather than growth in GDP. So I would like to spend the rest of my time with you reviewing some of the patterns we have seen in labor markets during early stages of previous recoveries. Of course, given the severity of this recession, consumer and business behavior this time may be somewhat more restrained than in past recoveries.
To reveal a bit of the “punch line,” my conclusions from the analysis I am about to walk through are that the employment response in the last two recoveries was much slower than it was in the two earlier recoveries in the 1970s and 1980s.[Footnote 4] And unfortunately the financial headwinds, lingering labor market problems, and a cautious attitude of consumers and businesses in the wake of the financial crisis make it likely that recovery in employment terms will also be slow this time.
Figure 2:
Employment Growth in First Year of Recovery