The US recession may be officially over, but…
High dollar `hollowing out' manufacturing economy
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The recession may be officially over, but recovery is fragile and job losses still mounting
Tom Raum, THE ASSOCIATED PRESS
The Canadian Press, 2009
WASHINGTON - It is about to become official: The U.S. recession is over - but not the pain.
The government will release figures this week expected to show that the economy has awakened from its deepest slump since the 1930s and is in the early stages of a recovery. But the following week, the government will issue another set of figures expected to show unemployment continuing to rise toward and possibly above a clearly recessionary 10 per cent.
How can both be possible?
The government releases third-quarter Gross Domestic Product figures on Thursday. Many forecasters say they will show GDP growing at an annual rate of about 3 per cent, validating a widely held belief among economists that the recession ended in June or July.
But try telling that to the more than 15 million still unemployed, the small businesses and individuals who can't get loans and the people whose homes are worth less than their mortgages.
Assertions by government and private economists that the recession is over - issued amid graphic examples of continuing wide distress - are raising fresh questions about economic scorekeeping.
The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.
Or, as Ronald Reagan liked to say, a recession is when your neighbour loses his or her job. Depression is when you lose yours.
A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organization, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over.
"From a technical perspective, the recession is very likely over," said Federal Reserve Chairman Ben Bernanke.
"A recession that showed no signs of ending last January appears to be firmly entering the recovery phase," said Christina Romer, the chair of the White House Council of Economic Advisers.
But nobody is sugar coating the statistics, especially in the administration, which agrees with private surveys suggesting that unemployment will hover near 10 per cent through most of next year.
"Even when you've turned the corner, you have so much work to do," Romer told Congress' Joint Economics Committee.
And while she credited much of the turnabout to government stimulus measures and moves by the Fed, she said "by mid-2010, fiscal stimulus will be contributing little to further growth."
Even ahead of the report expected to show an increase in economic growth, The Conference Board, a private Chicago-based research group, reported Tuesday that consumers' confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak.
That fueled speculation that an already gloomy holiday shopping forecast could worsen. Consumer spending accounts for more than two-thirds of the entire economy.
The economy has lost 7.2 million jobs since the recession began in December 2007, 3.4 million of them since President Barack Obama took office in January.
James K. Galbraith, an economist at the University of Texas at Austin, suggests too much attention is given to when recessions technically begin and not enough to other measures of the economy.
"It's just a word. A recession technically lasts during negative quarters. But that doesn't mean you're back to prosperity once you have positive growth. You're back to prosperity when the unemployment rate is back around 4 per cent," Galbraith said. And that, he said, could take years.
A recession is popularly defined as two or more consecutive quarters of negative economic growth, or declining output.
But a more refined determination is made by the National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. It not only looks at GDP but at employment levels, real personal income, industrial production and wholesale and retail sales.
It put the start date at December 2007 and has not yet called an end.
There have been 11 recessions since World War II. In the two most recent ones, job growth lagged long after the recessions were deemed over. In the most recent two - July 1990-March 1991 and March-November 2001 - the unemployment rate did not fall to prerecession levels for several years.
After the eight-month 2001 recession, the unemployment rate went from a prerecession 4 per cent in 2000 to 4.8 per cent in 2001. Then it kept climbing even higher - to 5.8 per cent in 2002 to 6 per cent in 2003. It didn't return to under 5 per cent until 2006, when it fell to 4.6 per cent.
While there are clear signs of recovery, it is uneven.
Stocks have surged about 50 per cent since their March lows. And a year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.
But smaller banks and other businesses are struggling, and many have failed or are failing.
That disconnect sparked anger among the public and led to sweeping government action last week to limit executive compensation at financial firms that accepted federal bailout money.
"While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need," Obama said in his weekly radio and Internet address. "These are the very taxpayers who stood by America's banks in a crisis - and now it's time for our banks to stand by creditworthy small businesses, and make the loans they need to open their doors, grow their operations and create new jobs."
There have been modest improvements in manufacturing and other parts of the nonfinancial business sector, yet lingering signs of weakness in commercial real estate and retail spending.
Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute it to government stimulus spending, including the now-expired Cash for Clunkers program; accommodative Fed monetary policies and widespread cost-cutting by companies.
Many companies let inventories run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. And U.S. exporters have benefited from a relentless decline of the dollar that has made U.S. goods cheaper and more competitive overseas.
But none of this adds up to a sustainable upswing.
"Absent robust job growth, it is not a true economic recovery," said White House economic adviser Jared Bernstein.
High dollar `hollowing out' manufacturing economy
Iain Marlow- Toronto StarSpecial Features
Foreign exchange rates are "hollowing out" Canada's already-battered industrial economy and require intervention by the Bank of Canada, CIBC said on Tuesday.
Avery Shenfield, CIBC World Markets' chief economist, argued the soaring loonie could force Canada's bruised manufacturers and exporters to leave the country.
The comments, the latest salvo from intervention advocates, came hours before Bank of Canada Governor Mark Carney appeared in front of the House of Commons committee on finance.
In the short term, Shenfield said, the Bank of Canada is keeping interest rates low to maintain activity in sensitive areas of the economy, such as housing construction. However, in the long term, the strategy will result in permanent damage, he said.
"If businesses are making decisions today about where to locate, which plants to leave open, which to close, and they look at Canada as an expensive place to export from – because our workers are expensive in U.S. dollar terms – then we might lose facilities during this period of Canadian dollar overvaluation," Shenfield told the Star.
Carney has recently talked down the dollar in public statements that seem to be working, since the loonie dropped from 97 cents against the U.S. dollar last week to 93.80 cents on Tuesday.
But he told the committee that although currency was important, it was not a necessary component in keeping inflation rates down.
That makes sense to Eric Lascelles, chief economics and rates strategist at TD Securities, who said it is impossible to fight the recession war with a double front against both the currency and inflation.
"It's quite clear that the Canadian dollar's strength is damaging some sectors of the economy, I don't think that's particularly up for debate," he said.
"Where the issue stands, is whether it's practical to think that one can successfully intervene in the currency."
To alter the currency, the Bank of Canada can buy and sell on foreign exchange markets.
The last time it did so was in 1998, an intervention that Lascelles said was "ultimately unsuccessful."
He added that the bank cannot possibly try to control the currency and the rate of inflation at the same time.
"You're always back to square one, which is not trying to proactively influence the currency, but rather trying to respond to it simply by indicating the consequences when the currency does move," he said.
Carney, according to United Steelworkers economist Erin Weir, is interpreting the bank's role in an overly conservative fashion. Pointing to the Bank of Canada Act's preamble, Weir said Carney and his team have a responsibility not only to regulate macroeconomic policy, but to protect employment.
"Mark Carney has raised the prospect of intervening in currency markets, but seems reluctant to actually do so."
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