Curious Capitalist

Is the Wimpy Recovery Morphing into a Recession?

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We’ve just begun coming to grips with the wimpy recovery. Are we actually in for another recession? That was the implication of a couple of economic reports I read this week, including one by ITG Investment Research, which tracked how the pace of this recovery (which was never great to begin with) has by some measures been slowing, particularly among middle-income consumers and industries producing for overseas markets. (Europe is definitely in a double dip, and many emerging markets are slowing too, as I’ve written about many times.)

One of the most interesting snippets from the report: While there are fewer goods on sale in American malls and retail shops than there were last year around this time, what is on sale is being discounted at much steeper rates — and not just at dollar stores but at outlets catering to middle- as well as lower-income people.

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That’s not surprising given that the gains we’ve seen during this recovery have mainly gone to the upper classes. Stocks are up, but it’s mostly rich people who own those. The residential real estate market, where most Americans keep the majority of their wealth, is still down. (I met Robert Shiller for lunch last week, and he said we’ve got years of pain to go on that front.) Salaries are also down – there’s been almost no growth in real income throughout the wimpy recovery.

Robert Reich’s FT blog yesterday summed up the bifurcated nature of the recovery well. He pointed out those shocking Berkeley numbers that have been getting so much press lately – in 2010, 93% of the economic gains went to the richest 1% of the population. Most of the bottom 90% lost ground. The 2011 figures aren’t in yet, but there’s no reason to think they’ll be any different. No wonder middle-income, as well as working-class, shoppers aren’t in a buying mood.

The question now is whether this will remain a wimpy recovery, or turn into something darker. I’m not ready to call another downturn yet, but the folks at ECRI, an economic research firm, are. Payroll job growth is up, and probably will be when new numbers come out on Friday (though perhaps less than last month), but a number of the indexes they track — which tally up other things like industrial output, income, sales, and consumer spending — are down. The result is that they’ve already made the double-dip call to their clients. I wouldn’t pay so much attention, except for the fact that they’ve correctly called three recessions, with no false alarms in between.

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I find myself consoled (oddly) by a speech Larry Summers gave last year at an INET conference in Bretton Woods, where he noted that all the big macroeconomic vectors in play, from the growth and political future of China to technology-related job creation and destruction to the commodities bubble, are so complex and so intertwined that it’s hard to predict exactly where the U.S. and global economies are headed. Fingers crossed, it isn’t toward another double dip.

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