Officially, the Great Recession is over, at least for the United States. That nation’s economy recorded 3.5 percent annual growth for the third quarter of 2009. Japan is also showing signs of an uptick in its economic fortunes. It is too early to celebrate, however. The recoveries will prove fleeting if consumers do not regain confidence and provide a continuing boost to their economies. Companies have not yet resumed hiring, and CIT Group Inc.’s bankruptcy filing may cause a financing crunch for many small businesses.
The U.S. economy had been shrinking for a year. In the first quarter of 2009, the economy contracted 6.4 percent, a showing even worse than the 5.4 percent decline recorded in the fourth quarter of 2008 and the sharpest fall since 1982. The slowing of the U.S. economic engine triggered a global downturn that raised fears of another Great Depression.
Fortunately, the administration of then President George W. Bush recognized the severity of the crisis and provided emergency financing for U.S. banks teetering on the brink of insolvency. Those efforts were followed up by the stimulus measures passed by his successor, Mr. Barack Obama. A $787-billion package is still percolating through the U.S. economy, providing a much-needed boost for spending as demand evaporated. By the Obama administration’s reckoning, the stimulus program has saved or created 650,000 jobs.
Additional measures found some success, such as the “cash for clunkers” program, which encouraged consumers to trade in old cars for newer, more fuel efficient models, and a federal tax credit for first-time home buyers that helped revive a housing market whose implosion had set off the global crisis. However, as both government programs expire, economists worry that whatever they contributed to the “recovery” will be temporary.
Orders for durable goods exploded, recording 22.3 percent growth in the third quarter. That number was eclipsed by the 23.4 percent rise in housing sales, spurred by an $8,000 tax credit. The result was 3.5 percent growth, a return to the average rate recorded over the last 80 years. That buoyed Wall Street, with major U.S. stock indexes jumping about 2 percent.
Troubling is the fact that most consumers are not yet feeling the benefits of recovery. The U.S. unemployment rate reached 9.8 percent in September, its highest level in 26 years. Businesses remain cautious and reluctant to hire. That means consumer confidence will remain low. Most analysts do not expect the job market to recover until next year. On the plus side, inventories have been drawn down about as far as they can go. They will have to be replenished and that should provide a boost for production and hiring.
Japan has received good news as well. The country’s unemployment rate dropped from 5.5 percent to 5.3 percent in August, a move that confounded economists. Credit the overseas recovery for the second consecutive month of job growth. A government program that provides wage subsidies — 2 million workers are getting help — is also supporting the job market.
Japanese manufacturers are still cutting jobs, but the pace has slowed; indeed, mining and manufacturing output increased for the seventh straight month, the longest stretch of gains in 12 years. Also, the job-to-applicant ratio improved for the first time in more than two years. Not surprisingly, household spending in September also nudged upward, rising 1 percent from a year earlier.
Plainly, however, the signs of recovery are weak. Indeed, it looks more as if the world economy has found a floor rather than experienced a genuine rebound. This is no time to think about withdrawing the stimulus measures that virtually all economists concede have nurtured the “green shoots” that are now appearing. The fragility of the rebound was evident when news of September’s downturn in U.S. consumer spending triggered a selloff in markets that erased the previous day’s gains.
The Bank of Japan is considering ending its purchases of corporate debt, which have provided much needed funds to companies; that step may prove premature. Related fears of an inflationary jump from all the spending are also exaggerated. Thus far, inflation in the U.S. is very low — 1.6 percent in the third quarter — while economists in Japan worry about deflation, not inflation.
Most important is to recognize the interdependence of national economies. Besides the U.S., it is the upturn in China — which is recording 8 percent growth — that is producing positive results elsewhere in the world. The fear now is that a reversal in either market will produce downturns elsewhere.
This interrelationship was evident when the contagion spread around the world last year. A sustainable recovery requires growth around the world. That means coordinated action with regard to stimulus measures — especially when phasing them out — as well as the resurrection of the Doha trade round, which could spread prosperity. Governments say they understand the need for such policies, but the delivery has been slow. A bump in the recovery may be needed to convince them of the stakes.
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