Economic Outlook: How long is recovery in a ‘Humpty Dumpty’ economy?
The good news is that the U.S. economy is growing — with the exception of the housing market — but the bad news is we’ve encountered the worst recession since the Great Depression, says Eugenio Aleman, director and senior economist at Wells Fargo.
“We went from -9 percent to almost 3 percent in almost three quarters,” Aleman explained during his “Construction Industry Economic Analysis & Outlook” presentation at the late October Construction Writers Association in San Antonio, which was attended by Aggregates Manager and Better Roads editors. “The only reason it [the economy] recovered is because the U.S. government intervened. During the Great Depression, the government didn’t intervene.”
Back then, the debt was 145 percent, and it’s rapidly approaching 100 percent, Aleman says. Regardless, it’s going to be very expensive coming out of this recession. “What we have done during the last three years, good or bad, left us very close to another Depression.”
And though the recession is technically over, Aleman says the majority of Americans don’t consider the nation as on the way to recovery, particularly because jobs aren’t being created at a rapid pace. “We lost 9 million jobs in two years,” he says. “If you take 9 million jobs time the per capital income, you can see how bad this has been.”
It will take nearly five years to recover 9 million jobs—even though the economy is growing. Typically, the economy can grow at about $200,000 per month. Then the question of underemployment is raised. Is it really underemployment, Aleman asks, or is it just the new economy? “If you extract how many workers are being laid off by the public sector, you have to add 60,000 more jobs.
The duration of unemployment shows a struggling labor market and the biggest issue is that employment isn’t growing at as fast of a pace as necessary to get the country moving. However, consumer prices are beginning to increase so there are higher prices but less work.
The Humpty-Dumpty Economy
The country has grown into what Aleman calls a “Humpty-Dumpty Economy.” Using a twist on the popular nursery rhyme, Aleman quips:
The U.S. economy sat on a wall,
The U.S economy had a great fall,
All the king’s treasury men,
And all the King’s Federal Reserve men,
Couldn’t put the U.S. economy together again.
“We have been on a brick wall for 11 years trying not to tall,” Aleman says. “On one side of the wall there is a 1930s/Japan-like Depression. On the other side of the wall, there is inflation and stagnation, which equals stagflation. It’s going to be tough to pull out of it, but the other side could go on for 20 years.”
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