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Weakest Recovery Since Great Depression.

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    September 17, 2011

    The National Bureau of Economic Research (NBER) is the official institution that dates recessions in the U.S., and on September 2010 they declared the recession that began in December 2007 officially ended on June 2009 and that a new expansion had begun. Despite the economy staging a decent bounce off lows in early 2009, one of the more notable members of the NBER business cycle dating committee, Martin Feldstein, was the main holdout for calling an end to the recession. The main reason was he didn’t think the recovery would take economic activity to new highs before another downturn would hit. With the economy rolling over and at risk of moving into another recession, it looks like Mr. Feldstein’s original judgment has proven correct as most indicators of economic activity failed to exceed prior peaks. Thus, it is a fair argument to suggest the recession never ended and should be labeled “The Second Great Contraction,” with the first being the Great Recession. A pictorial review below shows what a feeble recovery this has been, particularly with massive fiscal and monetary stimulus.

    What Recovery?

    Shown in the images to follow is the average recovery in various economic measures normalized to 100 at their peak versus time (months), and a figure showing the actual number of months it took to exceed the peak for past recoveries. First up is gross domestic product or GDP.

    As most people know, the broadest measure of economic activity is GDP. Shown below is data going back to WW II with the average recovery taking 13.5 months to exceed its former peak. You can see that the recovery this time from the December 2007 peak has failed to exceed its former high after 42 months and still counting.

    months to exceed prior peak in real gdp

    Real domestic final sales is GDP with net exports and inventories removed to get a better sense of consumer and business total demand. The average time to exceed the former peak has been 12.7 months, with the current expansion at 42 months and still counting without exceeding its former peak.

    real domestic final sales

    final sales bar 1948-2007

    Moving on to manufacturing, industrial production has also failed to exceed its former peak levels. Inclusive of the Great Depression, the average recovery has taken 32.75 months to exceed its former peak and we are at 43 months and still counting and have a ways to go to exceed the 2007 peak.

    industrial production

    ip bars 1920-2007

    Click here to enlarge

    Moving on to the heart of any recovery, employment, shows we have yet another “jobless recovery” on our hands in which we are closer to the prior trough than peak after three years. Looking at the second figure below, it is interesting to note that each recovery since the early 1980s has taken longer and longer to see employment levels exceed the prior peak, supporting the notion that we are dealing with a large structural unemployment issue in this country.

    employment recovery cycles from peak

    employment peak 1945-2007

    Given the amazing weakness in employment, not suprisingly personal income has also been incredibly weak and looks to be rolling over. Personal income less government transfer payments is yet another series failing to exceed its former highs despite being 38 months past its prior peak.

    personal income 1960-2008

    income bar 1960-2008

    This Time IS Different!

    What policy and monetary makers fail to grasp is that this time really is different. Typically it’s the cyclical sectors of the economy such as business inventories, auto production, etc. that lead to the variability of the economy and produce expansions and contractions. However, this time around the main driving force is a broken consumer credit cycle. Rather than leveraging up on debt like they have during every recovery since the Great Depression, the U.S. consumer has reached maximum credit saturation and instead is deleveraging and reducing overall debt levels. This has not happened since the Great Depression and the sooner Washington figures this out the better as policies to stimulate consumption such as tax breaks and more transfer payments aren’t going to do the trick. Overall debt levels must come back down further to more normal levels relative to economic activity.

    Read The Rest Of The Article Here

    A Pictorial Review of the Weakest Recovery since the Great Depression | Chris Puplava | FINANCIAL SENSE.


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