Why So Glum? Numbers Point to a Recovery<\/strong><\/p>\n By FLOYD NORRIS of the New York Times<\/p>\n The American economy appears to be in a cyclical recovery that is gaining strength. Firms have begun to hire and consumer spending seems to be accelerating.<\/p>\n That is what usually happens after particularly sharp recessions, so it is surprising that many commentators, whether economists or politicians, seem to doubt that such a thing could possibly be happening.<\/p>\n Usually you can depend on the White House to view the economy with the most rose-tinted glasses available. But it was not until last week, after a strong employment report, that\u00a0President Obama<\/a> started to sound a little optimistic.<\/p>\n \u201cThe tough measures that we took \u2014 measures that were necessary even though sometimes they were unpopular \u2014 have broken this slide and are helping us to climb out of this\u00a0recession<\/a>,\u201d he said in a\u00a0speech<\/a> at a factory making battery components in North Carolina.<\/p>\n Note, however, that he seemed to believe the country remained in recession. It is virtually certain that is not accurate, as least as will be determined by the arbiters of recession at the\u00a0National Bureau of Economic Research<\/a>. \u201cThe recession is over,\u201d one of those arbiters, Jeffrey Frankel of Harvard,\u00a0wrote<\/a> this week.<\/p>\n But the White House is unwilling to make that claim.<\/p>\n Why is good news being received with such doubt? Why is \u201cnew normal\u201d the currently popular economic phrase, signifying that growth will be subpar for an extended period, and that the old normal is no longer something to be expected?<\/p>\n It is possible, of course, that I am wrong and the prevalent pessimism is correct. Many economic indicators, including Thursday\u2019s retail sales report, are looking up, but that does not prove the recovery will be self-sustaining. There are issues relating to over-indebted consumers and local governments. The housing collapse will have an impact for some time.<\/p>\n But there are, I think, a number of reasons for the glum outlook that are unrelated to the actual economic data.<\/p>\n First, the last two recoveries, after the downturns of 1990-91 and 2001, were in fact very slow to pick up any momentum. It is easy to forget that those recessions were also remarkably shallow. If you are under 45, you probably don\u2019t have much recollection of the last strong recovery, after the recession that ended in late 1982.<\/p>\n Add to that the fact that the vast majority of the seers did not see this recession coming. Remember\u00a0Ben Bernanke<\/a> assuring us the subprime problem was \u201ccontained\u201d? In mid-2008, after the recession had been under way for six months, the Fed thought there would be no recession, and the most pessimistic member of its Open Market Committee\u00a0thought<\/a> the unemployment rate could climb to 6.1 percent by late 2009. It actually went over 10 percent.<\/p>\n In January of this year \u2014 after the recession had probably been over for at least a few months \u2014 the most optimistic member of the committee\u00a0expected<\/a> the unemployment rate to fall to 8.6 percent by late this year. The consensus was for a rate no lower than 9.5 percent.<\/p>\n Having been embarrassed by missing impending disaster, there is an understandable hesitation to appear foolishly optimistic again.<\/p>\n But even without that factor, it is normal for recessions to make people pessimistic. \u201cGo back and read what people were saying in 1982 or 1975,\u201d said Robert Barbera, the chief economist of ITG. \u201cNobody was saying, \u2018Deep recession, big recovery.\u2019 It is quite normal to expect an abnormally weak recovery. It is also normal for that expectation to be wrong.\u201d<\/p>\n But if that is normal, one factor that brings optimism to some forecasts is absent this time. Both Republicans and Democrats have good reasons to be negative. Republicans are loath to give President Obama credit for anything, and no doubt grate when he points to his administration\u2019s stimulus program as a cause of the good economic news, as he did in North Carolina.<\/p>\n Democrats would love to give the president credit. But much of the\u00a0Democratic Party<\/a> wants another stimulus bill to be passed, notwithstanding worries about budget deficits. Chances for that are not enhanced by the perception the economy is getting better.<\/p>\n The employment report for March, released a week ago, was a milestone that has been little noted. The household survey, from which the unemployment rate is calculated, showed a gain during the first quarter of this year of 1.1 million jobs, the best performance since the spring of 2005.<\/p>\n True, the more widely reported numbers from the survey of employers are not as good. But those numbers are subject to heavy revision as better data becomes available. At the turning points for employment after the last two downturns, those numbers turned out to be far better than was reported at the time.<\/p>\n Employment is a lagging indicator. Employers can be slow to cut back when business turns down, and slow to rehire when it picks up. It stands to reason that when employers cut back sharply \u2014 as happened in this cycle \u2014 they will have to rehire faster than if they had been slow to fire, as was true in the two previous downturns.<\/p>\n I looked back at the recoveries after seven recessions from 1950 through 1982 and found that, on average, such a strong three-month performance of the household survey, defined as a gain of at least 0.8 percent in the total number of existing jobs, came seven months after the recession had ended, with a range of two to 13 months.<\/p>\n If the 2007-9 recession ended in August, as the index of coincident indicators would seem to indicate, the lag this time will have been seven months.<\/p>\n The lag was 28 months after the 1990-91 recession ended, and an amazing 42 months after the 2001 downturn concluded. Those really did deserve the title of \u201cjobless recovery.\u201d But they were very different from what appears to be unfolding now.<\/p>\n The stock market\u2019s recent performance may be sending a similar message. Prices have been rising, but there is not much volume. Why? A lot of money managers are fully invested, but many investors remain fearful and are not putting cash into\u00a0mutual funds<\/a>. To judge from anecdotal evidence, some of the buying now is short-covering by hedge funds that expected the economy to be much weaker than it is, and thought corporate earnings reports would devastate investors. Instead, they are hearing from companies that business is stronger than expected.<\/p>\n Some Americans are in deep trouble, to be sure, and the days of paying for second homes by refinancing the mortgage on the first will not return soon. But many Americans \u2014 both individuals and businesses \u2014 who cut back sharply when fear was at a peak a year ago are now finding that they overreacted. The businesses need to hire to meet demand, some of it coming from individuals who are less fearful now of losing their own jobs.<\/p>\n In 1982, Democrats scoffed at a surging stock market and thought a severe recession would last for a very long time. They were confident that the economy would doom\u00a0Ronald Reagan<\/a>\u2019s re-election campaign in 1984. All they had to do was make clear they offered a stark alternative to the failing policies of the incumbent<\/p>\n Change a few words (Reagan to Obama, Democrats to Republicans, 1984 to 2012) and you have an accurate description of the current political climate. Could the Republicans be as wrong now as the Democrats were then?<\/p>\n Nike releases a a new \u00a0Tiger Woods commercial.<\/span><\/strong> Nike can’t drop Tiger, because too much of its business is at stake. But it can try something clever — a new commercial.<\/p>\n
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