The U.S. economy is not doing fine. Not in the private sector, and especially not in the public sector. President Obama was wrong to say otherwise – that the private sector is fine – last week. Mitt Romney was wrong to suggest laying off teachers and firefighters hasn’t hurt. And congressional Republicans are wrong to say the whole situation would improve if we just had more “certainty” around taxes and regulations.
Data tell us these things – real, hard numbers that sketch out a pretty convincing story of what’s happened to the economy since the Great Recession ended officially three years ago.
Broadly speaking, we know three really important things right now.
1. The recovery is slow and weak, but progressing. It turns out we had a financial and housing crisis; those turn out to be hard things to recover from. What we’ve seen over the last three years is a steady drop in unemployment, but still way too many – nearly 13 million – Americans looking for work who can’t find jobs.
The economy right now is like a patient coming out of a major operation, vulnerable to the slightest infection, and scared to leave the house. “Corporations are fully healed,” says Ethan Harris, cohead of global economic research at Bank of America Merrill Lynch. “They’ve got good balance sheets. They’ve got lots of cash. They can borrow at low rates. But … they don’t trust the economy, because they don’t have confidence in whether growth is sustainable or not.”
As a result, companies are only hiring when they have to – which is to say, when they see the chance for more profit, but can’t squeeze any more out of their existing workforce. The rate of hiring has risen over the last two years when the pace of productivity improvements has dropped.
2. Demand remains the big issue. There simply aren’t enough customers to force companies to add workers to make more money. The best illustration of that is the construction sector, which remains 2 million workers below its prerecession peak.
It’s a crazy-cheap time to build in America, but no one’s biting. Contractors keep cutting margins to offer great deals to potential builders, according to producer price indexes, but no one’s biting. Building activity has fallen dramatically. One huge reason is that government has scaled back capital spending at all levels. (It also has lopped off 500,000 workers since the recession ended and drained more than a half-percentage point from GDP in the last 18 months.)
3. European uncertainty is a problem. Regulatory uncertainty isn’t. There’s simply little, if any, evidence that the U.S. economy has sagged under the weight of whether the Bush tax cuts would be extended at the end of 2010, or of what new regulations will come online from the feds. Volatility indexes for U.S. and German stock markets have more or less risen and fallen in tandem postcrisis; you’d expect a more divergent picture if America’s economy was hindered by tax and regulatory uncertainty in a way that Germany’s isn’t.
Uncertainty, of the type correlated with slowing growth, is on the rise in the United States. But it’s all about Europe. An index of policy uncertainty compiled by researchers at Stanford and the University of Chicago spiked during the debt-limit debacle last summer, fell steadily thereafter, then spiked again after Greek elections sent the eurozone into a renewed tailspin. The researchers track both American and European news sources for uncertainty; check out how closely they’ve aligned since last fall.
That all adds up to what one of the Stanford researchers, the economist Nicholas Bloom, calls a “Rocky Balboa recession.” It never seems to give up, he says, even when you think it’s dead and buried.