Recovery has turned out to be far from predictable since the recession, however it is proving to be one of the longest. The National Bureau of Economic Research (NBER) judges that the US economy began expanding again in June 2009- about 58 months ago. This means that this current stretch is bound to surpass the average for post-WWII recoveries.
Although the economy is recovering, this has been one of the slowest recoveries we’ve seen. The 6.7% unemployment rate is the highest that we’ve seen compared to recent expansions. Also, GDP has grown only 1.8% a year on average since the recession, which is about half the growth of the previous three expansions.
What are potential reasons for such slow growth? Big surprise- the Republicans are blaming the Democrats and the Democrats are blaming the Republicans. Republicans argue that Obama and other Democrats in congress are slowing growth with tax increases and regulations such as the Affordable Care Act, which they argue has supposedly drawn businesses away from investing and hiring. Democrats blame the Republicans for “withholding support for stimulus spending at precisely the moment the economy needs a boost and for brinkmanship during fiscal battles”. On a more optimistic note, chief US economist at JP Morgan Michael Feroli proposed that slow growth may just imply that the economy isn’t completely out of fuel. Essentially, he believes that this is a signal that the expansion still has room to grow.
Other economists posit that the weak growth is due to the continuing effects of the recent financial crisis. After recessions, it is always hard for both banks and consumers to get back to stable financial conditions. Another hypothesis says that the sluggish economy is due to ‘secular stagnation’- “The theory claims that the labor force and productivity, growing more slowly than in the past, along with reduced consumption and increased savings, prevent the economy from returning to prior growth levels”. This was the same fear of economists in the 1930s after the Great Depression.
Although unemployment is high, job creation is below optimum, and economic growth is below average- business profits are still continuing to climb. In terms of future growth in the economy, it is definitely a good sign that consumers are still spending and supporting businesses. I feel that there is definitely still room for the current recovery to expand. A key indicator that this article failed to mention is that business investment has recently been increasing. The fact that businesses are increasing investments and capital levels means that banks are now more willing to lend. It also signals a 2-way street between businesses and consumers that both are more confident that each will do their part to benefit the other.