The economic recession feels as though it were just yesterday. I vividly remember the mixed feelings when Senate and House leaders announced a tentative deal to pass President Bush’s plan to purchase $700 billion in “troubled assets” in order to stabilize the financial system. I remember anxiously watching the bill fail in the House and the Dow Jones Industrial Average plummeting by 777 points, the equivalent of $1.2 trillion in market value, the largest single-day drop ever. And I remember the painstaking process of watching the votes in the House trickle in on the second vote, the ebbing and flowing of yeas and nays, before finally seeing the final vote tally: 263 in favor, 171 against.
Of course, that wasn’t the end of the recession. Far from it. To the nearly 14 million Americans who are still searching for a job, or stuck in a part-time job because they can’t find full-time work, the recession has never ended. As the Wall Street Journal’s Ben Leubsdorf recently wrote:
Even for the millions of Americans back at work, the effects of losing a job will linger, the research suggests. They will earn less for years to come. They will be less likely to own a home. Many will struggle with psychological problems. Their children will perform worse in school and may earn less in their own jobs.
“The average effects are severe and very long lasting,” said Jennie Brand, a sociologist at University of California, Los Angeles. “There’s no quick recovery.”
U.S. economic output remains stubbornly below its potential level, as estimated by the Congressional Budget Office. And many people probably won’t be back on their feet by the time the next recession arrives. J.P. Morgan Chase & Co. economists recently predicted a new recession was more likely than not within three years.
What a depressing thought. The idea that this is not just a new normal, but the peak before yet another setback, seems beyond belief. Even in 2008, the fear was mixed with a feeling that we would bounce back. We were the United States, after all. Recessions came and went, but our recoveries always seemed to leave us stronger than ever.
Sadly, J.P. Morgan’s three year estimate may be conservative. In September, the Wall Street Journal survey of business, academic and financial economists estimated that the U.S. had a 10 percent chance of falling into a recession within the next year. In February, the Dow Jones Industrial Average fell by nearly 15 percent, sparking fears that the recession had come early. It didn’t, but according to the Journal’s May survey, economists were sufficiently spooked, doubling their odds of a recession.
“Decelerating employment growth, growing uncertainty, and sputtering GDP growth does not portend well,” Chad Moutray, chief economist at the National Association of Manufacturers, told the Journal.
The data since then has been less than promising. The economy grew at a 0.5% annual pace in the first quarter of the year. Hiring at temp agencies, a leading indicator of a job-market slowdown, didn’t just slow down, it shrunk – a dramatic reversal from the preceding five years when it grew five times as fast as overall employment. Gross domestic product either slowed or shrank in 28 states. Economists reduced their expectations for job growth in each of the last four months, following tepid hiring in the first half of the year. And the May jobs report showed that employers created a measly 38,000 jobs, the worst monthly job gain since 2010, the heart of the recession.
The increasingly negative data, coupled with international turmoil that could further roil markets, has left economists very pessimistic. The Wall Street Journal reports on their latest poll of economists:
The forecasters generally see an economy in peril, surrounded by risks from around the world. In addition to the potential fallout from Britain leaving the EU, many see the possibility that a slowdown in China’s economy could batter the U.S.
A strong U.S. dollar and lower energy prices could continue to hurt U.S. exporters and manufacturers, as well as U.S. oil companies. Already, the manufacturing industry has lost 39,000 jobs in the past year while the mining and logging industry (a group that includes oil producers) has lost 129,000.
In a gauge of the panel’s pessimism, about 76% of respondents said that if their forecasts are wrong, it will likely be because the economy does worse. Only 16% think the economy is more likely to do better than their forecasts.
Still, those economists say the economy “only” has a 21 percent chance of falling into a recession in the next year. But some other models aren’t so hopeful. A model maintained by Deutsche Bank analyst Steven Zeng suggests that the economy has a 55 percent chance of a recession in the next 12 months – the highest probability generated during the recovery.
This is nothing like the swift financial crash of 2007, when the economy nosedived and Congress scrambled to deploy a parachute. But it’s still feels like we’re slowly descending with no landing gear and a poor pilot. And that’s not a great feeling for the many of us who are still looking for the path out of the last recession’s grip.