This week, The New York Times reported on the fact that the National Bureau of Economic Research, the group charged with officially dating the beginning and end of recessions and expansions, was unwilling to declare an end yet to the downturn that began in December 2007. Diane Swonk gives us her view on the question.
So do you think the recession is over?
Yes, it likely ended in June 2009, which means we're about 9 months into a recovery, at least technically. But like an expectant mother waiting for her baby to be born, this feels like a long labor before we get to meet the recovery in person.
That said, some time in the second quarter, we will see overall economic activity, adjusted for inflation, cross its previous peak, which was hit prior to the recession in the fourth quarter of 2007. This means we're actually moving into an expansion. But it doesn't feel like that, and in fact, in most sectors, except for health care, we have not. Most sectors, like the housing market and auto sales, are operating closer to recession levels.
The NBER's caution in calling the recession's end is that we might in fact have a double-dip recession. Is that a possibility?
It is absolutely a risk, and it's much higher than we'd like, somewhere around 20 percent. It's still not the most likely outcome, but given the relapse we've seen in housing, particularly with home values falling more rapidly again, foreclosures picking up, and the fact that we're not able to keep home sales up after the end of the first homebuyer tax credit, is really disturbing. The most likely scenario is that the recovery will persist, but it's not a recovery that's very friendly to consumers and it's also not one that's going to bring down unemployment rapidly. So the NBER's reluctance to date it is understandable and justifiable.
So you don't think they're being too conservative?
No, the NBER has a job to be conservative because they can't go back and restate it again. Given that this is still a very fragile recovery, and one that doesn't seem like a recovery to most, it would be premature to start popping champagne corks. And frankly, by the time they do declare the end of a recession, the economy's usually well into recovery anyway.
Is there a risk by not calling the end that this will affect policy in a way that's not effective?
Well, concern about the economy is one of the reasons why the Fed is still reluctant to raise rates now; they're afraid of derailing what could be a fragile recovery and causing a double dip. So I think for the real policymakers in Washington, this is irrelevant to them. Will it be used politically? Probably. But the reality is you can't fool the American consumer -- if they don't feel good about the economy, whether you call it a recovery or a recession or an expansion, they just don't feel good about it.
Do you think Washington will be passing any additional stimulus measures?
There' s not a lot of latitude to do that at this stage in the game. We don't have a lot of extra spare cash to do that -- we're already in debt. The best Washington can do is operate on the margins. And frankly, in the places where we need it most-- in the housing market and jobs -- there's only so much they can do and it's already showing up. If there was a silver bullet to be shot, it would have already been shot.
What are the larger trends you're seeing now in the economy?
The biggest issue is it's time we face reality. We have to deal with the responsibilities that our economy has left us. You can't constantly look to consumer be a consumer-driven economy -- we have to be an investment- and export-driven economy, which is where we're moving. We'll continue to spend, but we can't have consumer spending continue to be the backbone of not only the U.S. economy, but the global economy. We have to see consumers around the world step up to buy our goods. The only way you pay back debt is with a little austerity. But if you invest and export, you're investing in your future -- it's like going on a diet and getting healthy again. Investment produces productivity growth which leads to profits.
We are at a point where we've got a lot of profits and cash on our balance sheets, and we're starting to invest in new equipment. Those are all things that can make us healthier again. The mistake in the 90s was to allow consumers to avert the burden they were supposed to be carrying and let them get further into debt -- that was unsustainable and led us to where we are today. There is no more free meal for the U.S. consumer.