Economists Anil Puri and Mira Farka took the stage at the Hyatt Regency in Irvine this afternoon to deliver the 17th annual California State Fullerton Economic Forecast. At this point, given the state of the economy, no one expected the outlook to be good. The news that U.S. GDP growth picked up somewhat in the third quarter, to 2.5 percent, took some of the edge off. The theme of last year's presentation was "Recovery," so it made sense that the question asked this time around was "Where's my boom?"
Yeah, about that boom...
Much like the UCLA Anderson forecast, released in September, the Fullerton forecast — which provides a comprehensive picture of the national and Southern California regional economy — tackled the sluggish nature of the recovery from the 2008 Financial Crisis and subsequent Great Recession. What are economists at UCLA and Fullerton worried about? Well, not about finding a boom. More like avoiding a stall:
There is much talk about the economy moving at "stall speed" these days. The concern is that a stalled economy can easily slip back into recession—which is further evidenced by data showing that, since the 70s, whenever GDP has grown by less than 1% in a given quarter a recession has followed more than half the time.
This is the dreaded "double dip" recession than everyone has gotten so concerned about since the apparent recovery weakened earlier this year, in the face of the Japanese earthquake/tsunami and the oil shock that followed the Arab Spring (the debt ceiling debate and the Eurozone crisis haven't helped).
The ensuing lack of confidence, coupled with continuing efforts by consumers and businesses to shed debt, has parked national unemployment at 9.1 percent, California at just under 12 percent, and Los Angeles County at 12 percent.
Decent and unexpected GDP growth over the summer has calmed those fears. And for the Fullerton economists, echoing the Anderson forecast, most components of the economy have fallen so low, and recovered so tepidly, that it would take a massive shock to the overall system to bring on another recession. When you're this far down, it's hard to keep on falling.
Of course, just because we aren't technically in a recession, and now don't expect to tumble back into one this year or next, that doesn't mean people aren't feeling gloomy about national and especially regional economic prospects. "Please don't shoot the messenger," asked peppery Fullerton economist Farka, who delivered the troubling macroeconomic overview to the lunchtime audience at the Hyatt.
She had good reason for the request:
We are four years into what can potentially turn into our lost decade. According to our projections, in the baseline scenario, unemployment is likely to return to its full potential (around 5%) only by the end of 2018 and perhaps later if the current recovery is derailed....So, our best scenario is one of “muddling through” or “long slog no slide.”
I'll unpack the data a bit more in subsequent posts, but the forecast zeroed in on a disturbing trend: jobless recoveries from recessions aren't just here to stay — they're getting worse. The time lag between GDP recovery and employment recovery, according to forecast, was six months after the 1981 recession; 15 after 1990; and 40 after 2001. After the Great Recession, the recovery period could be 60 months — or more!
The U.S. is getting worse at recovering, on the employment front, with each recession. You could argue that this last recession was far more severe than anything we'd seen since the Great Depression, but the fact remains that even much less daunting recessions are very successfully destroying jobs while the economy is failing spectacularly at bringing them back at a reasonable pace.
Meanwhile, job creation itself is slowing down. Between 2000-07, "the U.S. added a total of 9.2 million jobs" according to the Fullerton forecast, "half the rate of the previous decade."
Anil Puri offered a quote from the poet Paul Valéry to characterize the situation (Ah, economists — you're got to love their worldliness!): "The trouble with our times is the future is not what it used to be."
Is this the New Normal? A "lost decade"? I think it's a variation on the stagflation of the late 1970s, which I call "stuckflation." And I find myself agreeing with Puri and Paul Valéry. Although I think Leonard Cohen might have said it better.