No Worse Than Expected
Sure, the economy is bad. But at least it's meeting expectations.
If you thought the recovery was on track—the economy growing again, unemployment slowly receding, housing prices stabilizing, the stock market rising—you thought wrong. In recent weeks, virtually every indicator has headed south. The only consolation, if you can call it that, is that such setbacks are hardly unexpected.
Let's start with housing, which accounts for about 20 percent of the national GDP. This week, the most-watched housing index confirmed that prices have dropped to a new recession-era low, down in 19 of the 20 biggest metro regions from a year ago and confirming a double dip. The National Association of Realtors also reported a sharp 12 percent drop in pending home sales for April—meaning that further price declines are likely.
Then there's the abysmal labor market. This week, ADP, a private payrolls firm, announced that the private sector added an anemic 38,000 jobs in May. That works out to just 760 jobs per state and is the worst growth since last September. (In April, by comparison, private employers added 177,000 jobs.) On top of that, initial unemployment claims—a leading indicator, suggesting where the unemployment rate is headed—are climbing back up. That has stoked fears that the May unemployment rate, which the Labor Department will announce Friday, might rise from last month's 9 percent.
Indexes of confidence and industrial production—previously a bright spot in the economy—were also crummy. The most-watched manufacturing index came in short of expectations, falling from 60.4 to 53.5 from April to May. (Readings below 50 mean the sector is contracting, rather than than expanding.) Auto manufacturing and sales are also soft.
Consumer confidence took a nosedive, too. The Conference Board said its main index plummeted from 66 in April to 60.8 in May. "Consumers are considerably more apprehensive about future business and labor market conditions as well as their income prospects," Lynn Franco, the head of the Conference Board Consumer Research Center, said matter-of-factly.
Reeling from all the bad data, economists went back to their models of the economy's current strength and its probable growth. Goldman Sachs lowered its forecasts for GDP growth for the second time in a month, and its analysts saw fit to warn that "we already see downside risk to that estimate." Macroeconomic Advisers and other major forecasting firms also nudged their GDP growth estimates down.
So what's the good news? Could foreign demand save us, with Asian and European consumers taking advantage of the cheap dollar and their more-buoyant economies pulling ours up? Not likely. The trends are bad over there and over here: Demand is slack around the world. China's economic growth is slowing. And Europe continues its tremendous struggle to keep weak economies, like Greece's, simply afloat.
All this bad news has Wall Street spooked. On Wednesday, stocks took the steepest nosedive since August last year. Forecasters now expect continued gloominess in the stock market, which had until recently seen a strong rally, throughout the summer. CNN, for instance, reports that "shareholders in major U.S. companies are rushing to sell their own stakes, trying to cash out ahead of what many experts say will be a summer of declining stock prices."
There is, finally, one bit of cold comfort: At the very least, the news is not really news. Most analyses of the kind of recession we are having—the kind that follows a massive financial crisis and an asset-price bubble that led to too much leverage throughout the economy—indicate that things should be pretty bad right now. They're correct. The IMF, for instance, warned as far back as 2009 that the "combination of financial crisis and a globally synchronized downturn is likely to result in an unusually severe and long-lasting recession." Economists Carmen Reinhart and Ken Rogoff, who have studied 800 years of recessions and panics, concur. "I would say we're right on track," Reinhart says. "Yes, the recovery looks long, but that's because we haven't had a financial crisis this severe since World War II."
That is not to say that there is nothing to be done, of course, or that the current state of affairs is inevitable. More stimulus or more aggressive monetary policy could help the economy, boosting employment and keeping the self-sustaining recovery going. But such measures are unlikely, given Congress' concern with the debt ceiling and cutting spending.
Annie Lowrey, formerly Slate’s Moneybox columnist, is economic policy reporter for the New York Times.
Photograph of job seekers by Tom Pennington/Getty Images.