Recovery Will be Slower Than in Past Slowdowns

President Obama waded into the economic debate this week with what he thought was hopeful news. "We have stopped the freefall," he said. "The market is up and the financial system is no longer on the verge of collapse." Those are two undeniable achievements, but they fall way short of all the predictions we're hearing these days that the recession is over. The best Obama could muster was that "we may be seeing the beginning of the end of the recession."

Literally as Obama was speaking, the Commerce Department had some grim results. New orders for manufactured durable goods fell 2.5 percent in June. Hardest hit was commercial aircraft, down 38.5 percent in just one month. Some analysts took solace from the fact that orders of nondefense capital goods, excluding aircraft, actually rose 1.4 percent for the month, but it's still clear we're not out of the woods yet.

Another measure of economic health, applications for unemployment insurance rose by 25,000 to 584,000 last week, which was higher than forecast by economists but less than the more than 600,000 claims that were filed in June.

In addition to Obama, the Federal Reserve also weighed in with comments on the economy, but the non-political Fed sounded a bit more downbeat than the President. William C. Dudley, president of the New York Fed, said he believed that the economic contraction is waning and he expects to see modest growth later this year. But he also warned that "there are a number of factors which suggest the pace of recovery will be considerably slower than usual." He added that he expects consumption -- which accounts for 70 percent of economic activity -- is likely to grow slowly. "Weak income growth," Dudley said, "will be an effective constraint on the pace of consumer spending."

The Fed also released its Beige Book report of economic activity. It reports that most Fed districts "indicated the pace of decline has moderated since the last report or that activity has begun to stabilize." In other words, things are getting worse at a slower pace or have stopped collapsing. That's indeed good news, but it doesn't mean we're out of the woods yet.

Look at the number of home foreclosures. RealtyTrac, an online marketplace for foreclosed homes, said 1.5 million homes were foreclosed in the first six months of 2009, a nine percent increase from the previous six months and 15 percent above the number in the first six months of 2008.

"Foreclosure activity continued its upward trajectory nationwide and in the majority of metro areas in the first half of the year," said James J. Saccacio, RealtyTrac's CEO. "While some of the markets that had the highest saturation of foreclosures over the past few years have seen declining rates, new markets like Provo, Utah and Boise, Idaho have seen large increases. As unemployment rates increase in different parts of the country, it's very likely that we'll see similar patterns develop elsewhere."

So the housing mess is spreading out from Las Vegas, southern California and south Florida. That's supposed to be encouraging news? If anything, it's a sign that things are getting worse, not turning around. It will take at least another six months before we see conclusive signs of that improvement.