Forget the Double Dip; WhereÕ the Recovery?

I’m in Washington, DC today, preparing to host a discussion later this week with economist Douglas Holtz-Eakin, former director of the Congressional Budget Office, a commissioner on the Financial Crisis Inquiry Commission and current president of the American Action Forum. Should be a lively Q&A, to say the least. (Many thanks to the American Legal & Financial Network for asking me to participate at their annual gathering here, as well.) Not surprisingly for anyone who knows me, I’ve been spending a fair amount of my time preparing questions and compiling data. And what I’m looking at has me wondering what sort of economic recovery we’ve really had—while most analysts have suggested we’ve been out of recession since middle-to-late 2009, I’ve long held that it hasn’t felt that way for most Americans. Here’s why: in one important way, our standard of living in this country has reverted all the way back to 1983. In reviewing a letter from Hoisington Investment Management Co. recently sent my way via John Mauldin, this gem stood out: “Thus far, the NBER has been unwilling to proclaim an end to the recession that started in late 2007. This may partially reflect the fact that the ratio of people employed to our total population has fallen from 62.7% in December 2007 to 58.5% today. Although the recent low in this measure was 58.2%, touched just a couple of months ago, our present level is no higher than it was in 1983.” Not surprisingly, the recovery we have been seeing and hearing about is in many ways almost not at all a recovery–because it isn’t being felt by most Americans. Consider that real U.S. GDP has averaged about 3.2% annualized since the “bottom” in 2009, and consider that roughly 2% of that total is due to inventories, leaving just 1.2% to actual economic growth. Recently, Gluskin Sheff economist David Rosenberg wrote that this is the worst GDP recovery, at least ex-inventory, on record. And, yet, we’ve done more than ever before in an effort to make it all happen. To recap: We’ve been running a 10% deficit-to-GDP ratio, and managing soaring debt-to-GDP ratio. We’ve seen the Federal funds rate sit as close to zero as it can get, for as long as possible, helping drive mortgage rates to their lowest levels nearly ever. The Fed has tripled its balance sheet by purchasing mortgage securities, while the FHA has stepped in to offer the next generation of subprime loans to consumers. We’ve shifted the sands of our accounting rules to enable profit growth primarily in the financial sector. We’ve put incessant pressure on banks to modify non-performing loans. We’ve juiced car purchases and home purchases via tax incentives, too – all part of massive stimulus spending designed to get the economy working again. All this, and we have only the worst recovery on record to show for it? If it took that much effort just to keep things flat-lining, where do you think we go next as the stimulus wanes? There is little impetus in Congress at present to consider additional stimulus—rightfully or wrongfully—and a recent Time survey suggests 67% of Americans are strongly opposed to such measures. Only time will tell what lay ahead, but the data I’m looking at today isn’t exactly encouraging. The ECRI’s Weekly Leading Index is now down 9.8 percent, and has now been negative for the past 6 weeks. At the current level, our nation has never failed to have a recession—something numerous economists and pundits have highlighted privately, even if the CNBCs of the world aren’t broadcasting such a message to Jim Cramer’s loyal viewership. What’s been far more surprising to me, however, is how few economists thus far are willing to give credence to the idea that a double dip recession may be in the offing. Generally speaking, we’ve heard that double-dips are so rare an occurrence that they are unlikely to be seen now. But our past 18-24 months, if anything, should have made what was once considered rare part of the new normal in terms of economic thinking. That said, I don’t know that we’ll see a double-dip recession, either–but for an entirely different reason. I’m not so sure we ever really ended the first one. Paul Jackson is the publisher of HousingWire.com and HousingWire Magazine. Follow him on Twitter: @pjackson