It’s too early to start popping champagne and celebrating the end of the recession, in spite of certain misleading signs. Some might protest, saying the stock market hit record highs in March, and that unemployment has been steadily decreasing. That’s the surface of the story, but if we dig a little deeper, it’s clear that the economic recovery is moving like molasses. How did the world’s most powerful country end up in such an impossibly deep rut?
To put the gravity of this recession into context, the U.S. economic recession began in December 2007 and officially ended in June 2009, making it the longest in post World War II history. For comparison’s sake, the second longest post World War II recession was only six months in duration. During what is now an extremely long post-recession recovery period, there are a lot of mixed messages about the state of the economic recovery, and a lot of different ways to interpret the data.
Certain statistics, such as the unemployment rate decreasing by .7 percent in the last year, seem somewhat promising. However, April’s unemployment rate of 7.5 percent is actually very high for this late in a recovery. One factor driving this slow recovery could be a lack of interest rate cuts by the federal government.
“A slow economy will usually perk up when the Fed cuts interest rates, but this time interest rates started at so low a level that there wasn't room for the Fed to cut them much,” said Mark Witte, Distinguished Senior Lecturer in the Department of Economics.
Lower interest rates mean a lower cost of living for average Americans, as well as lower costs associated with investing and doing business, according to a HowStuffworks article on interest rates. It also makes the American dollar weaker, which can be positive in the short term, encouraging Americans to spend money on cheaper American products rather than more expensive foreign ones. However, lower interest rates also mean higher inflation, so it is clearly a difficult process to regulate, even in the best of times.
The situation is even bleaker when one considers the fact that while jobs are being added at a higher average than last year, at 196,000 a month compared to 179,000 in 2012, this isn’t nearly enough to keep up with population growth. With this factor in mind, experts say the economy needs to add 8.6 million jobs.
Private sector jobs is the area of the economy that people cite most frequently as making the biggest bounds toward growth, but this is not happening in nearly large enough amounts to jumpstart the economy. According to the ADP National Employment report, businesses added 119,000 employees to their payrolls in April, significantly less than the gain of 150,000 that was hoped for.
While this private sector picture doesn’t look very good, the situation is even worse with government jobs. Increasing the availability of public sector work is often seen as a way for the government to intervene and assist the economy, but efforts there have fallen short.
“The other way to encourage a weak economy is government hiring, but over all levels of government, we've been shedding jobs rather than increasing them,” Witte said.
There’s a debate about whether this is due, at least in part, to the sequester, which certainly killed off some government jobs. School and court closings have been going on throughout the recession, so while recent austerity measures are unlikely to be helping the situation, they certainly have not impacted it hugely, at least not yet.
No matter the cause, the government’s failure to intervene has resulted in huge problems for everyday Americans, whether it means having to travel miles just to get to a court hearing due to court closures, or the slated closure of 54 Chicago Public Schools.
In the midst of all this, the stock market is performing extremely well, hitting record highs in recent months. While this seems like an optimistic sign, it is not necessarily reflective of a strengthening U.S. economy. It could be due to the fact that other countries still see U.S. businesses as worth investing in, it could be because of the large sums of money the federal government is pumping into the stock market, or any other among a host of reasons. The bottom line is that strong stock market performance can lead people to draw misleading conclusions about the speed of the economic recovery as a whole.
It’s clear that the slow speed of the economic recovery is certainly negatively impacting Americans. The end of the recovery may not yet be in sight, but government is not without options to ease the pain of this slow to die recession.
“It would be a great time to fix all our worn out or overused roads, bridges, sewers and other infrastructure. We also have a lot of schools that need work, and more teachers. It's super-cheap for government to borrow right now, and it should to do these tasks,” Witte said.