BluefoxToday blog : February 2010

Let’s Call It Like It Is—It’s Not A Recovery

unemployment memorialFollowing its most recent meeting, the Federal Open Market Committee (FOMC) has issued a statement of its projections about the economy, but instead of “sugar coating” or garbling the message, let’s call it like it is—it’s not a recovery. Chairman Bernanke had already warned us to expect a “jobless recovery,” but exactly what is that? Isn’t that just another way of saying, no recovery? Those without jobs or who are bringing home smaller paychecks or whose employment remains precarious, would have difficulty agreeing that their financial picture is recovering.


For those of us in real estate related businesses, the FOMC said little about their expectations for the housing market; and since housing is a major component of the economy, the omission seems a bit strange. While the November and December reports both mentioned improvement in the housing sector, the January report continued to focus upon last year.


What the report did point out, however, is that the jobs market will remain tenuous at best, and continued high unemployment means no housing recovery. Conversely, the lack of a robust housing market only serves to keep unemployment at higher than normal levels.


Regarding the labor market the report stated:

Participants anticipated that labor market conditions would improve only slowly over the next several years. Their projections for the average unemployment rate in the fourth quarter of 2010 had a central tendency of 9.5 to 9.7 percent, only a little below the levels of about 10 percent that prevailed late last year. Consistent with their outlook for moderate output growth, participants generally expected that the unemployment rate would decline only about 2.5 percentage points by the end of 2012 and would still be well above its longer-run sustainable rate. Some participants also noted that considerable uncertainty surrounded their estimates of the productive potential of the economy and the sustainable rate of employment, owing partly to substantial ongoing structural adjustments in product and labor markets.

The report further states: The weakness in labor markets continued to be an important concern for the FOMC; moreover, the prospects for job growth remained an important source of uncertainty in the economic outlook, particularly in the outlook for consumer spending.


To translate the above: Unemployment to remain high for several years, and Americans should be prepared for a prolonged period of anemic economic growth. Those whose plans have been based upon a “V” shaped recovery must alter their course or have it altered for them.


Finally, our Fed wizards said: Because current conditions may differ from those that prevailed, on average, over history, participants provide judgments as to whether the uncertainty attached to their projections of each variable is greater than, smaller than, or broadly similar to typical levels of forecast uncertainty in the past . . . (Translated: Everything we’ve said could be wrong, but we’ve stated it well.)


Let’s call it like it is—It’s not a recovery yet; and won’t be one for a long time.


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Comment balloon 16 commentsJohn Mulkey • February 18 2010 08:22AM
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