The U.S. economy gets about 70 percent of its fuel from the tapped-out American consumer, who most economists believe doesn't have the will or capacity to gin up anything more than a halting recovery from the recession that began two years ago.
Most government statistics -- 10 percent unemployment, $2.5 trillion in consumer debt, 15 million unemployed (including nearly 6 million unemployed for 27 weeks or more), the 17 percent drop in household wealth -- depict a depleted U.S. consumer who is too weak to fuel a recovery of the magnitude economists normally would expect given the severity of the recession.
"If the consumer is spending at a subpar rate, then the economy grows at a subpar rate," said Morris Segall of SPG Trend Advisors, a Baltimore research and consulting firm. "U.S. consumption going forward is going to be at a lower rate than we've seen it over the last 10 to 15 years."
The good news, according to BNY Mellon Chief Economist Richard B. Hoey, is that the risk of a global recession has passed and that a double dip recession is unlikely. He's predicting unemployment will peak in the spring near 10.5 percent and describes the emerging recovery as a "gradual financial recuperation," nothing like the 8 percent growth economists would normally expect based on the depth of the recession.
While economists, including White House chief economic advisor Lawrence Summers, agree the recession is over or nearing an end, the pronouncement brings little comfort to many. For them, the cure will be indistinguishable from the disease.
"Seven million families are behind on their mortgages and at risk of foreclosure, and 25 million Americans wanting full-time work can't find it," said University of Maryland economist Peter Morici.
Three measures of the U.S. economy's work horse do not provide much reason for optimism.
U.S. consumers were carrying $2.5 trillion in debt on their balance sheets in October, down from a peak of $2.6 trillion achieved in July 2008, according to Federal Reserve Board Statistics. Despite the drop, consumers had 14 percent more debt in October than they had five years ago.
Since bottoming out in the first quarter, household net worth -- the value of Americans' homes and savings minus their debt -- has bounced back 10 percent. Despite the recovery, the third quarter indicator is 17 percent below its 2006 peak.
Finally, the Economic Policy Institute estimates the average income of a typical American household will fall $2,456 this year and another $601 next year, bringing the decline since 2007 to more than 9 percent.
To be sure, there are signs consumers are getting back on their feet. The U.S. Commerce Department reported last week that the economy grew at a 2.2 percent pace in the third quarter. Personal income nudged 0.2 percent higher in October, while retail sales rose 1.9 percent in November.
"The consumer has started to come back but remains cautious and more frugal than in the past," said Chris Kuehl, an economic analyst with the Fabricators & Manufacturers Association International, a Rockford, Ill., industry group.
U.S. factories are operating at 68 percent of capacity compared to the long-term average of nearly 80 percent, said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, an Arlington, Va., public policy and economics research group. He is forecasting "continued moderate growth" in industrial activity next year. American Iron and Steel Institute President Thomas J. Gibson agrees.
"Everything we're seeing is telling us it's going to be a very slow climb out of this recession," he said.
The fear is that modest manufacturing sector gains won't put enough people back to work to fuel a more robust recovery. With consumers unable to find jobs, working fewer hours than they want or worrying they'll be the next to get a pink slip, their tendency will be to save rather than spend.
"I do think we're probably entering a new era of consumption. Consumers are pulling back because they are poor," said the Economic Policy Institute's Heidi Shierholz.
Businesses are taking consumer attitudes into account when formulating their hiring plans.
"There's no urgency on the part of employers to go out and start putting permanent people back to work full time," Mr. Segall said. "This isn't going to be where we peak at 10, 10.5 percent [unemployment] and go back to 4 percent unemployment. We think you could be looking at 7 or 8 percent unemployment in a recovery."
Adds Ms. Shierholz: "We're looking at probably another five years of elevated unemployment."
http://www.post-gazette.com/pg/09361/1023591-28.stm
