TO judge by the stock market, the recovery from the Great Recession is much stronger than the one after the early 1970s recession, which followed the first oil price shock.
But by most other measures, the current recovery is far weaker.
Those two downturns were the longest since the Great Depression. The country’s economy took two years to regain its former size in the 1970s, and three years in the recent recession. In each case the stock market lost about half its value and then began a powerful rally a few months before the recession officially ended.
Just 26 months after the market hit its low in early 2009, the Standard & Poor’s 500-stock index had doubled, by the end of April. By contrast, the market took more than five years to double after it began to advance in late 1974.
Similarly, the manufacturing economy has rebounded sharply. Industrial production and durable goods orders have risen much more rapidly than they did in the earlier period.
Still, the overall economy, as measured by gross domestic product, rose less than 5 percent in the two years after the market hit bottom, compared with a gain of almost 7 percent during the comparable period in the 1970s.
Personal income, adjusted for inflation and excluding government transfer payments, is up less than half as much as it was in the earlier period. And while private sector employers added jobs at the fastest pace in five years over the last three months, there are still fewer jobs than there were when the stock market bottomed, according to Friday’s employment report for April
One major reason for the slow recovery is that the construction industry continues to suffer. The financial crisis was caused in part by easy credit policies that caused overbuilding, and that led a deep and continuing fall in construction spending. The Census Bureau reported this week that spending ticked up in March, but that may have simply reflected an improvement in weather. The February figure had been the lowest for any month since 1999.
Those trends are shown in the accompanying charts, which show the changes for each measure from the time the stock market hit its low point.
The stock market recovery in many ways has been a mirror image of the fall from the market peak reached in the fall of 2007. Nearly every stock went down when the market was sliding, and nearly every stock has gone up during the rebound.
Of the 100 major stocks in the Standard & Poor’s 100-stock index, 90 are up by at least a third since the market low. Financial stocks led the way down, and have led the way back up as well, although most are well below where they were when the crisis began.
Floyd Norris comments on finance and the economy on his blog at nytimes.com/norris.
Read Full Article »