Why does this page look this way?
It appears that you are using either an older, classic Web browser or = a=20 hand-held device that allows you to view our content but may not work = with every=20 feature of our site. If you are using an older browser, please upgrade for the = best=20 experience.
home > Economics > Why = the U.S.=20 Recovery is Lagging
Sebastian=20 Mallaby, Director of the Maurice R. Greenberg Center for = Geoeconomic=20 Studies and Paul A. Volcker Senior Fellow for International=20 Economics
The latest jobs report from the U.S. Labor Department confirms the = picture=20 that emerges from CFR's economic tracking. Although the recession = ended two=20 years ago, the recovery is agonizingly slow. Friday's data show that = nonfarm=20 payrolls increased by only 54,000 in May, about one-third of what = private=20 forecasters expected and far fewer than the 232,000 jobs that were = added in=20 April. The unemployment rate ticked up from 9.0 percent to 9.1 = percent.
CFR's quarterly chartbook*, which sets the U.S.=20 recovery in historical perspective (PDF), shows that the economy = has=20 expanded by a total of 4.9 percent since the last recession officially = ended=20 in June 2009. By comparison, the average postwar = recovery had=20 generated an expansion of 9.4 percent by this stage in the cycle. Even = taking=20 into account the job creation of the past quarter, the total number of = nonfarm=20 jobs in the economy is only slightly above the number that existed = before the=20 recovery started. By contrast, the average postwar recovery had = created some 2=20 million jobs by this stage.
Why has the recovery been so anemic? During the recession, real = house=20 prices declined more sharply than in any twentieth century contraction = (see=20 the historical comparison in a=20 second chartbook [PDF]). But during the current recovery, house = prices=20 have failed to come back up; indeed, they have fallen a further 7.1 = percent.=20 This performance is worse than anything the United States has ever = experienced=20 in the post-war era.
Falling house prices have three consequences for the recovery. They = increase mortgage defaults, damaging banks' balance sheets and so = restricting=20 lending to new business ventures. They reduce labor mobility, since a = family=20 with negative home equity may be reluctant to sell and realize the = loss. Most=20 importantly, falling house prices make families feel poorer, so = dampening=20 consumption. Another chart in our collection shows how households have = continued to pay back debt since the start of the recovery. In every = previous=20 post-war cycle, the recovery has fueled rising consumer confidence and = rates=20 of consumption, boosting corporate profits and job growth.
The current economic cycle is outside the scope of historical = experience in=20 one further sense. In the average postwar recovery, the United States = had a=20 federal budget deficit of around 3 percent of GDP. This time, the = United=20 States began the recovery with a federal deficit that was fully three = times=20 larger, and it has barely shrunk since. The extraordinary scale of = U.S.=20 deficit spending is now reaching both political and financial limits:=20 Politically, the Republicans in Congress are determined to cut federal = spending; financially, ratings agencies are starting to signal that = U.S.=20 credit worthiness may lose its gold-plated status. If the rating = agencies=20 deliver on their warnings, the U.S. government's cost of borrowing may = increase, pushing up the budget deficit and calling into question the = U.S.=20 dollar's reserve currency status. Following a similar move by Standard = &=20 Poors, Moody's=20 Investors Services announced on Thursday that it might review the = U.S.=20 government for a possible downgrade.
Special factors may explain why the May jobs report was = particularly awful.=20 The Japanese earthquake disrupted global supply chains, hurting = employment in=20 manufacturing. The energy price spike drove families to cut back on=20 discretionary spending, causing the leisure and hospitality sector to = cut jobs=20 after four months of solid expansion. But the larger truth is that the = pressure to rein in government spending, coupled with continued = pressure on=20 household consumption from soft house prices, points to tough times = ahead. The=20 latest grim jobs report may not be the last.
* The chart book is produced by CFR's Maurice R. Greenberg Center = for=20 Geoeconomic Studies.
Weigh in on this issue by emailing CFR.org.
BACKGROUND & ANALYSIS
The New = Arab=20 Revolt: What Happened, What It Means, and What Comes Next
This=20 collection sets the intellectual stage for understanding the = revolutions in=20 the Middle East and includes seminal pieces from Foreign = Affairs,=20 ForeignAffairs.com, and CFR.org as well as speeches and primary source = documents.
Available in Kindle, Nook, Sony Reader, iBook, PDF, and = paperback=20 versions
Recognizing=20 the limitations of current international systems based in The Hague, = David A.=20 Kaye provides a strategy for promoting national-level justice and=20 accountability mechanisms to prosecute perpetrators of mass atrocity=20 crimes.
Complete=20 list of Council Special Reports
=20 Michael Spence describes how the recent period of growth in developing = countries is leading to a convergence with the developed world.
=20 Stewart Patrick challenges the conventional wisdom about failed states = through=20 systematic empirical analysis that traces the connections between = state=20 failure and transnational security threats.
= Gayle Lemmon tells the remarkable story of a young entrepreneur = whose=20 business created jobs and hope for women in her Kabul, Afghanistan,=20 neighborhood during the Taliban years.
Co= mplete=20 list of Books
To order Task Force reports, Council Special Reports, and Critical = Policy=20 Choices, please call, fax, or order = online from our distributor, the Brookings Institution Press: = phone=20 +1.800.537.5487, fax +1.410.516.6998.
For information on other reports that are not for sale, or for = general=20 publications information, please call +1.212.434.9613 or email mailto:publications@cfr= .org?co=3DC003805.
To request permission to reprint or reuse CFR material, please=20 fill out this permissions request form (PDF), referring to the=20 instructions on page 1.
The Council on Foreign Relations takes no institutional position on = policy=20 issues and has no affiliation with the U.S. government. All views = expressed in=20 its publications and on its website are the sole responsibility of the = author or=20 authors.
Copyright =A9 2011 by the Council on Foreign Relations, Inc. All = rights=20 reserved.
Please tell us, how can we improve this = page?
Why does this page look this way?
It appears that you are using either an older, classic Web browser or = a=20 hand-held device that allows you to view our content but may not work = with every=20 feature of our site. If you are using an older browser, please upgrade for the = best=20 experience.
home > Economics > Why = the U.S.=20 Recovery is Lagging
Sebastian=20 Mallaby, Director of the Maurice R. Greenberg Center for = Geoeconomic=20 Studies and Paul A. Volcker Senior Fellow for International=20 Economics
The latest jobs report from the U.S. Labor Department confirms the = picture=20 that emerges from CFR's economic tracking. Although the recession = ended two=20 years ago, the recovery is agonizingly slow. Friday's data show that = nonfarm=20 payrolls increased by only 54,000 in May, about one-third of what = private=20 forecasters expected and far fewer than the 232,000 jobs that were = added in=20 April. The unemployment rate ticked up from 9.0 percent to 9.1 = percent.
CFR's quarterly chartbook*, which sets the U.S.=20 recovery in historical perspective (PDF), shows that the economy = has=20 expanded by a total of 4.9 percent since the last recession officially = ended=20 in June 2009. By comparison, the average postwar = recovery had=20 generated an expansion of 9.4 percent by this stage in the cycle. Even = taking=20 into account the job creation of the past quarter, the total number of = nonfarm=20 jobs in the economy is only slightly above the number that existed = before the=20 recovery started. By contrast, the average postwar recovery had = created some 2=20 million jobs by this stage.
Why has the recovery been so anemic? During the recession, real = house=20 prices declined more sharply than in any twentieth century contraction = (see=20 the historical comparison in a=20 second chartbook [PDF]). But during the current recovery, house = prices=20 have failed to come back up; indeed, they have fallen a further 7.1 = percent.=20 This performance is worse than anything the United States has ever = experienced=20 in the post-war era.
Falling house prices have three consequences for the recovery. They = increase mortgage defaults, damaging banks' balance sheets and so = restricting=20 lending to new business ventures. They reduce labor mobility, since a = family=20 with negative home equity may be reluctant to sell and realize the = loss. Most=20 importantly, falling house prices make families feel poorer, so = dampening=20 consumption. Another chart in our collection shows how households have = continued to pay back debt since the start of the recovery. In every = previous=20 post-war cycle, the recovery has fueled rising consumer confidence and = rates=20 of consumption, boosting corporate profits and job growth.
The current economic cycle is outside the scope of historical = experience in=20 one further sense. In the average postwar recovery, the United States = had a=20 federal budget deficit of around 3 percent of GDP. This time, the = United=20 States began the recovery with a federal deficit that was fully three = times=20 larger, and it has barely shrunk since. The extraordinary scale of = U.S.=20 deficit spending is now reaching both political and financial limits:=20 Politically, the Republicans in Congress are determined to cut federal = spending; financially, ratings agencies are starting to signal that = U.S.=20 credit worthiness may lose its gold-plated status. If the rating = agencies=20 deliver on their warnings, the U.S. government's cost of borrowing may = increase, pushing up the budget deficit and calling into question the = U.S.=20 dollar's reserve currency status. Following a similar move by Standard = &=20 Poors, Moody's=20 Investors Services announced on Thursday that it might review the = U.S.=20 government for a possible downgrade.
Read Full Article »