The "Great Recession" ended four years ago. The National Bureau of Economic Research tells us that the 18-month contraction – the longest since the Great Depression (1929-33, 43 months) – ended in June 2009 and has since given way to an ongoing expansion phase that has been less than convincing.
Stock indices have regained pre-recession levels, but real estate values have not. The country has recouped only about 70 percent of its lost jobs, and even in Massachusetts, where employment is all the way back, the unemployment rate remains high. Real personal income is not quite where it was. While aggregate corporate profits are at record highs, many companies are struggling.
AIM’s monthly Business Confidence Index traces the course of the recovery from the perspective of Massachusetts employers. The chart below shows monthly readings from February 2009, when the Index bottomed out at 33.3, through May 2013 when it stood at 52.1. (The Index, initiated in July 1991, is scored on a 100-point scale with 50 as neutral; 33.3 was its all-time low, while its peak was 68.5 in 1997-98.)
The chart divides into two patterns.
From the bottom in early 2009 there is an almost unbroken 20-point upgrade to a clearly positive reading of 53.7 in June 2010. This was the period when the national economy turned the corner, and the financial system stabilized. It is also the span when the fiscal stimulus program was in full force – an effort that emerges as effective but inadequate (and indeed the severity of the downturn was not fully grasped at the time).
Since then, for almost three years we have a saw-tooth pattern, never exceeding 57.1 and falling below 50 on several occasions. The drops coincide with federal fiscal action or inaction: the end of stimulus, deadlock over the debt ceiling and the “fiscal cliff,” tax increases and spending cuts.
Why, even after three consecutive monthly gains, is the Business Confidence Index down 4.7 points from last May?
"Disappointment, unevenness, and uncertainty," suggests Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors.
"Employers are disappointed that the recovery has been so slow, and has generated so little economic momentum. Its benefits have varied greatly by industry sector, geographic region, and firm size – there is considerable evidence that large companies have generally fared better than small ones. And beyond the direct business impact of tax increases and government spending cuts, there are persistent doubts about the effectiveness of policy leadership on economic affairs, domestically and internationally."
Growth, strong at the start of the year, weakened in recent months as fiscal drag – tax increases and government spending cuts – holds back a fairly vigorous private-sector economy. Massachusetts has outperformed the nation throughout this cycle in the statistics and in AIM’s Index but faces headwinds from poor conditions in major European export markets. Forecasts do, however, show growth picking up later in the year and into 2014-15.
The key question is whether the U.S. will achieve enough sustained growth to put our underutilized productive capacity back to work. Today’s May Employment Situation release from the Bureau of Labor Statistics puts the national unemployment rate at 7.6 percent, and the U-6 rate, which includes the unemployed, underemployed, and marginally attached/discouraged workers at 13.8 percent.
The evidence of a recovery is there, but too many people (and capital assets) are not participating. If we cannot achieve above-average expansion to bring us towards the pre-downturn trend line, the long-term cumulative impact of the Great Recession will be great indeed.