Aug. 23, 2012 at 12:58 PM ET
One of the weakest recoveries in the last half century apparently remains on track. For many American voters, though, it feels like the recession never ended.
“This is President Obama's imaginary recovery,” Republican vice presidential candidate Paul Ryan told a group of supporters Wednesday in Roanoke, Va. “It's not here. “
The latest evidence came Thursday with the government’s weekly numbers on new applications for unemployment benefits. Though less reliable as a job market barometer than the monthly employment report, weekly jobless claims rose last week, a reminder that unemployment levels remain painfully high.
About the only good news these days is coming from the housing market, which has finally found a bottom after a dizzying plunge from the worst bust since the Great Depression. New home sales perked up again in July, edging up 3.6 percent to a seasonally-adjusted 372,000-unit annual rate, matching a two-year high seen last July, according to data released Thursday.
The depressed housing market has been a major drag on the recovery. Housing typically provides a major lift coming out of recessions; building a house creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics compiled by the National Association of Home Builders.
Like the overall recovery, though, the housing market’s upturn is painfully weak. Sales of existing homes are expected to rise 8 percent this year to about 4.6 million -- well below the 5.5 million annual sales pace seen in healthy markets.
Sales have been held back by a variety of forces, including millions of underwater homeowners who can’t move. Those who want to buy face tightened credit standards for mortgages, according to a report last month by the Federal Reserve.
The economy is growing at a snail's pace; it slowed to a 1.5 percent annual rate in the second quarter from two percent in the first three months of the year. Last month, the jobless rate last month reversed course and inched up a tenth of a point to 8.3 percent after a steady decline from a peak of 10.0 percent in October 2009.
So it's no surprise that many Americans share Ryan’s view that the recovery is “imaginary,” according to conservative pundit Romesh Ponnuru, a senior editor for National Review magazine
“Although statistically we are in a recovery, politically we are not in the kind of recovery people actually feel,” he said. “When you hear from members of the administration and the Democrats that the economy is growing, that's something that just rings false to most people. Because they know they are still hurting.”
Political rhetoric aside, the current recovery pales by historical standards. After four-and-a-half years the U.S. economy, as measured by gross domestic product, is just 1.7 percent bigger than when the recession began in 2007. By comparison, at this point in recoveries from past five recessions, the economy had grown by between 12.1 percent and 15.6 percent, according to a recent analysis by Credit Suisse economists.
Still, while the economy’s growth rate is anemic by historical standards, most economists don’t see it headed back into recession. If anything, the latest data seem to show very slight improvement, according to Goldman Sachs economist Jan Hatzius.
“The level of activity is unsatisfactory and the growth rate growth is unsatisfactory, but the change in the growth rate I think is actually getting a little better,” he said. “We’ve seen some positive numbers so we think it’s going to be a little stronger than the very disappointing second quarter.”
Those positive numbers aren’t swaying many voters. Since the recession began, more Americans believe they’ve lost their grip on middle class status, and many of those still hanging on say the recession has left them worse off financially.
Some 42 percent of those who identify themselves as middle class told the Pew Research Center they’re in worse shape, about 32 percent said they’re in better shape, and the rest either don’t know or see no difference, according to a survey released Wednesday.
Numbers like those are providing a powerful opportunity for the Republican campaign, which heads to Florida next week to officially nominate Mitt Romney as the GOP presidential candidate and Ryan as his running mate, to hammer the president’s economic record.
“As we go into Tampa next week, the message of the campaign has been simplified,” said GOP Consultant Phil Musser. “They’re talking about five core themes to get middle class jobs growing."
As the presidential campaign has intensified, the resulting political gridlock has become an even bigger impediment to growth. With Congress deadlocked over tax and spending policy, businesses, consumers and investors are hunkering down.
“What you’d like to see is that we do not run policy based on this brinksmanship," said Federal Reserve Bank of St. Louis President James Bullard. "That puts uncertainty sitting out into the future, the markets pull that uncertainty into today, and then that has an effect on the economy today."
The potential damage from ongoing gridlock was brought into focus Wednesday when the Congressional Budget Office offered up its latest analysis on the looming fiscal cliff of tax hikes and spending cuts set to hit at year's end unless Congress and the White House change course. In its latest report, the CBO estimates that current policies, if left intact, would slam the brakes on growth -- reversing the weak pace into a contraction at an annual rate of about a half a percentage point.
“If you compare it to previous recessions, this one that CBO is talking about next year is worse than the one in 2001 or the one in 1991,” said Dave Malpass, former deputy assistant treasury secretary in the Reagan administration. “It’s more than a double dip. It’s a second big recession.”
Buried in its analysis, CBO researchers also marked down their assumptions for the economy’s “potential” growth rate in the next three years. The change is in line with an ongoing discussion among economists -- including recent musing by Fed Chairman Ben Bernanke on Capitol Hill -- that the economy may be “stuck in the mud,” thanks to a variety of long-term forces that go well beyond fiscal or monetary policies.
Those structural changes in the economy, which have been underway for years, include the aging of the U.S. population, a decline in the growth of productivity and the ongoing hangover from the housing bust, among others. Those forces will persist no matter who is elected in November.
The global economy is also slowing as the European debt crisis continues to grind on with no solutions in sight. There is little either presidential candidate can do to insulate the U.S. economy from the fallout at home from a recession in Europe.
Solutions will have to come from Europe’s leaders. But, two years and dozens of meetings and failed plans after the crisis unfolded, there is little indication that a viable fix is in the works, according to Bullard, who recently toured Europe for discussion with leaders there.
“The debate is rancorous. Terms are not defined well. Some solutions are far-fetched. So I’m kind of pessimistic coming away from that discussion. I don’t think the European institutions are really in place to deal with this crisis. I think our best scenario is muddle through and our worst scenario is something worse than that. So I’ve become pessimistic on Europe's ability deal with this,” Bullard said.
With 10 weeks left in the presidential campaign, though, that outlook doesn’t bode well for the White House.
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