The Missing Economic Recovery

Five years into this supposed economic recovery from when the financial crisis first hit and this country is still far from recovering the over eight million jobs it has lost since then. The U.S. economy has also not returned to the GDP level it was at in 2007, just before the financial crisis hit.

From the 1980s to just before the 2007 financial crisis, recessions lasted one to three years before economic growth resumed. From 1947 to 2011, GDP growth averaged 3.28% per quarter, but we have yet to return to this level in this economic recovery, even though we are five years removed from when the financial crisis first hit.

The official unemployment rate is 8.3%, although I would argue that the underemployment rate is the more accurate measure of unemployment in this country. That aside, the official unemployment rate today in this economic recovery is 8.3%, when it was 4.4% before the financial crisis hit.

When the economy was growing, there were many months where 300,000 and 400,000 jobs were being created. It’s been five years since the financial crisis hit and we have yet to experience this type of monthly growth in jobs in this economic recovery.

Often, after a recession, a recovery in the housing market is usually a sign that the recession has passed and that an economic recovery is taking hold. Five years after the credit crisis, we are all still waiting for the bottom in the U.S. real estate market, even though there are economists every single year claiming that “this” year is the bottom.

Consumer credit is not expanding. With the average American still having over one dollar of debt for every dollar of income, this expansion of credit will be hard to come by. Those who have jobs in the U.S. are seeing their real disposable income fall—not keeping up with inflation. How can credit expand in such an environment? In turn, how can there be an economic recovery in such an environment?

Corporations are sitting on record amounts of cash and are not investing it in capital projects that will create jobs because of two reasons. I believe the reason for the lack of incentive to invest is that corporate America doesn’t believe there is sufficient consumer demand due to the aforementioned consumer who is saddled with debt.

Five years into this supposed economic recovery, the financial crisis is fresh in everyone’s mind; the average American doesn’t feel as though things are improving—except for the stock market, of course. Watch that stock market rally, dear reader; it does not look to be sustainable. (Also see: The Makings of a Classic Bear Market Trap.)

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average is basically stuck at the 13,000 level. While the bear market rally does its best to lure investors back into the stock market, real cracks in the economy are starting to show.

Dear reader, there has been no real growth in this post-recession economy. It’s all smoke and mirrors. What we have are a government falling more into debt each passing day, a central bank that keeps interest rates artificially low, real inflation rising, and no real job growth. We are experiencing the most anemic post-recession economy recovery since the Great Depression. I see worse times ahead, not better times. We are nearing the end of the bear market rally that started in March of 2009.

What He Said:

“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market. I’m bearish on the general stock market for three main reasons: Borrowing money in 2008 will be more difficult for consumers. Consumer spending in the U.S. is drying up, which will push down corporate profits.” Michael Lombardi in PROFIT CONFIDENTIAL, January 10, 2008. The year 2008 ended up being one of the worst years for the stock market since the 1930s.