The big chill continues. Consumers are still hoarding money. The U.S. can't generate much heat in its GDP growth. The total number of unemployed and underemployed has reached 17% (which includes part-timers and those who have stopped looking for work).
Companies may be seeing their profits increase at record levels year over year (they hit record profits in the third quarter of 2010), but they won't be spending this money on the expensive American worker. As economist and author Todd Buchholz put it at a recent NAPFA conference in San Diego: Imagine an American worker walking around with a sandwich board that says, "I'm expensive and I don't know much."
Meanwhile, the Fed keeps pouring money into the economy to get a fire going, but even with the looser monetary policy, there hasn't been much of a thaw. The economy has seemingly landed on the glacial ice, but people can't agree on how to push the ship off.
"We're still dealing with a number of headwinds," says Scott J. Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. "We have continuing problems in the residential mortgage area, you've got state and local government budgets that are under enormous strain. Credit is still pretty tight, particularly for small firms and consumers, and you have the federal fiscal stimulus which will be starting to ramp down next year."
And it seems like anytime people start to feel hubris about the economy coming back, more bad news comes down from Mount Olympus: In December, the Labor Department reported only 39,000 new jobs added in November, down from 172,000 in October.
Economists have largely stopped worrying about a double-dip, "W" shaped recession, but it doesn't mean there's going to be a "V" shaped bounce-back either. In past recessions, GDP growth has often surged forward 6%, 7% or 8% in the first year of recovery (after the 1981-1982 recession, the U.S. saw six quarters of growth above 5%). Compare those numbers to what's expected for 2011: the consensus is predicting that GDP will squeak along at 2% or 2.5% next year, with only a little bit of a pickup in the second half.
In other words, the growth is going to be slow as molasses in January (and February and March and April ... . ). And depending on how much Prozac you're taking, you could even say the recovery will take years, not months, to get back on track. Even if real GDP reached 4%, it would still take five years to get the unemployment rate down from 10% to 5%, wrote Mary Ellen Stanek, chief investment officer at Baird Advisors, in a recent release. That leads to a vicious cycle of inhibited growth.
"We have not created enough additional income, to create enough additional demand, to create enough additional supply, to create enough additional jobs, so that we're creating more jobs and so more people are working," says Jerry Webman, chief economist at OppenheimerFunds.
So why the slow recovery?
"Normally, there is a sector that brings you out of downturn," says Quincy Krosby, a chief market strategist at Prudential Annuities. "We had the tech sector hiring when we came out of the downturn that preceded the tech boom. After that we had private residential real estate. And remember, on private residential real estate that's predicated on the consumer. So this time, we come into this downturn with a heavily indebted consumer, way down in one of the most important parts of the individual portfolio, which is housing. The negative wealth effect of housing is a drain."