This is not the 1930′s. It’s not even the early 80′s. Heck, it’s not even the 70′s. All of these economic downturns were characterized by one glaring similarity – the jobs came back. As The Economist recently noted the 30′s actually had a relatively robust job’s recovery and similar trends were apparent in the 70′s and 80′s:
“FEARS that the recovery of America’s economy after the financial crisis would fail to spur an increase in employment are being realised. In July, 52,000 fewer people were employed on non-farm payrolls than in July 2009, the month in which it is estimated the American economy climbed out of recession. Comparing the latest recession with previous ones is unflattering. The American economy has seen downturns this severe and recoveries this jobless, but never one on top of the other.”
The largest single barrier to sustained recovery remains the labor market. Unfortunately, aggregate demand remains subdued as the private sector remains mired in a debt de-leveraging cycle. The problem here is like some sort of sick death spiral – the problem of debt has reduced private sector spending and investment as households and corporations continue to pay down debt. This has resulted in below trend revenue growth at corporations. Below trend revenue growth results in poor visibility and a hesitancy to hire – margin expansion via cost cutting is only sustainable up to a certain level and we’re already seeing corporate margins reach high historical levels.
So, the problem with the US economy is quite simple really – the labor market is unlikely to recover until the problem of debt is alleviated. Based on my research I think it’s safe to say that the de-leveraging cycle is likely to last at least into 2012 and that means tepid job’s growth is likely to persist. And that ultimately means tepid economic growth. David Rosenberg is certainly right about one thing – this recession never ended. Unfortunately, most people (specifically, those in government) fail to understand that this is not your typical recession – this is a balance sheet recession and debt remains the largest impediment to sustained economic recovery.