CHICAGO — Wondering what to expect of the post-recession recovery? “We went through a bad one clearly, but we’re on the mend,” says William Strauss, senior economist and economic advisor at the Chicago Federal Reserve.
It won’t be a dramatic or fast recovery from the looks of it, though.
During the most recent 18-month recession, the U.S. economy saw a 4.1 percent decline in Gross Domestic Product (GDP); however, after the recession ended in June 2009, the economy began to expand again, to the tune of roughly 2.3 percent in the past year.
This most recent economic downturn associated with the financial crisis is a situation not seen since the Great Depression, Strauss said. And while everyone from major corporations and investors to everyday consumers have been living very cautiously the past several years, Strauss says the pendulum is swinging back toward risk-taking.
“Personally, you’re probably seeing more credit card applications than you did before. Personal savings rates have increased as well,” Strauss said. However, he added, if consumers, who represent two-thirds of GPD, are saving more, they are spending less. “It’s the paradox of thrift. It’s good in the long run, but it gives a hit in the short term.”
Housing was always a safe way for consumers to save for retirement in the past, but with home prices down roughly 25 percent, that strategy has changed. People are thinking of their homes less as an investment and more as a place to live, Strauss pointed out.
In his research, Strauss also has found that fewer than 10 percent think the stock market will rise over the next 10 years. So, relying on a stock portfolio as a pathway to retirement savings isn’t necessarily a good bet either. Strauss recommends paying down credit card debt or your mortgage: “It’s as if you’re paying yourself,” he said.
As for the outlook post-recession, Strauss points to research from the Blue Chip Forecasting Group, which anticipates growth this year to come in at roughly 2.9 percent, and next year 3.1 percent. It’s disappointing, Strauss noted, compared to the recessions of the mid-1970s and mid-1980s, when the economy grew approximately 16 percent higher over the following two years (80s), in 5.3 percent (70s), but slightly better than trend.
Strauss also added that unemployment rates will be slow to rebound as well. Next year, the unemployment rate, which is currently at about 9 percent, will still likely be around 8 percent.
For those in the aftermarket, there is a small bright spot, however. “One sector that has been spectacular is manufacturing,” Strauss said. “Over the past 22 months, growth has averaged a nearly 7 percent annualized rate; we’ve recovered over half of the loss, and April would have been up if not for the interruption to production due to the Japan Earthquake and tsunami.”
During the downturn, every single manufacturing sector was hit. Overall, manufacturing dropped 20 percent, but the two sectors that fell the most were motor vehicle manufacturing and parts manufacturing, which dropped by 50 percent. Today, a bounce back is occurring in motor vehicle parts production, which is up by 60 percent — benefiting the Midwest economy more than other areas of the economy, Strauss pointed out.
Light vehicle sales also are steadily rising, but with a slight shortage of product this year. Economic indicators for vehicle sales suggest conditions will continue to improve but only moderately, with a 2011 forecast of 13.3 million units, and 14.1 million anticipated in 2012.
