Notes From Recovery Summer

Written By Brian Hicks

Posted August 16, 2010


For what its worth, the latest quarterly AP Economy Survey shows a gloomier mood among economists over the last three months. As a group, their outlook is for weaker growth and higher unemployment.

Yet for some reason there is a glimmer of hope among them that a double dip recession can be avoided.

According to the survey, a majority of the 42 economists polled believe the recovery remains on track. Why?…I’m not sure.

Taken together their forecasts include:

  • Economic growth the rest of this year and early next year will weaken, to less than 3 percent. From January through May, the economy grew at roughly a 3.5 percent pace.
  • The unemployment rate will be no lower at the end of the year than it is now at 9.5 %.  A majority think it will be 2015 or later before the rate falls to a historically normal 5 percent..
  • Nearly two-thirds of the economists view the states’ budget crises as a significant or severe threat to the rebound.

And while there is nothing really new here, it’s pretty obvious the tide is shifting towards a much more pessimistic outlook. After all, it was just a few months ago when some of these same economists were looking at rate hikes in response to the rebound.

Today, they seem to have caught a case of the “new normals”—especially since a weak consumer poses a “significant” or “severe” risk to the recovery.

That’s why they have largely adjusted their growth figures to less than 3 percent going into 2011. Again, that explains why unemployment is likely to stay high since it takes about 3 percent growth just to create enough jobs to keep pace with the population increase.

For the unemployment rate to really drop, growth would have to equal 5 percent for a full year to drive the unemployment rate down by 1 percentage point.

That, to me, is a long shot in the short term. You see, it’s different this time as the chart below clearly shows.


Now if that’s not the most telling chart I’ve seen in a long time, I don’t know what is.  What strikes me about though is this: It covers practically everyone’s common experience.

In other words, what it shows is a lifetime of job growth that has only recently failed us. I think that is part of the reason why so many people have a hard time grasping these new realities.

They are so different than the sum total of our experience that I think we underestimate them.

Food for thought.

Related Articles:

Why Johnny Can’t Find a Job

Milton Friedman on Capitalism

The Vocabulary of The New Normal

The Social Security Ponzi Scheme

To learn more about Wealth Daily click here

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium