Is This The Recovery We Have Been Waiting For?


Karl Smith -- Assistant Professor of Public Economics at UNC-CH & Blogger at Modeled Behavior

Last Summer, as the incoming data grew darker, many economic commentators predicted recession. Even the notoriously accurate Economic Cycle Research Institute called a second recession a done deal. At the time I was strongly skeptical.

The fundamentals as I saw them didn't call for that. American's total housing stock was too small for the size of the population. We still had a fairly large number of suburban single family homes, though after years of record low building, not as many as people thought. Meanwhile, our stock of apartments, duplexes and mobile homes was desperately low.

During the single family housing boom, production in these segments actually dropped off, and during the collapse they died. Yet, traditionally they have housed 40% of US families. With so many people moving out of single family homes, these structures - I thought - would be in high demand.

At the same time the stock of cars and trucks in the United States was actually shrinking. We were building fewer cars and trucks each year than we were scrapping. Moreover, the cars and trucks that we had were getting increasingly old, implying that maintenance costs were rising and the scrappage rate was set to increase.

This was happening while the US population was growing. Unless we were entering a completely new world were their were ever fewer cars and houses per person we had to see a turnaround soon.

We saw a similar effect in local government employment. The number of teachers, firefighters and police officers was shrinking. Again, unless the way American communities are run had taken a permanent change this was going to turn around as well.

Those forces combined with the baseline strength of the American economy - I thought - were likely enough to push the economy into self-sustained growth.

Since that time we have seen a pick-up in auto sales, which may be coming faster than I would have expected. We have also seen an increase in multifamily housing construction, which is coming a little slower than expected. And we have seen a bottoming out in local government layoffs, about on schedule.

Is this then the recovery we have been waiting for?

My sense is: not quite yet.

When the recovery hits we should sense a jolt in the economy. We should expect manufacturers to be rushing ahead to increase deliveries faster than expected. We would expect building projects to take on a sense of urgency rather than trepidation. We don't quite feel that yet.

I had expected that jolt or kick to come sometime around now, in March or April. Chances are it will be late.

Nonetheless, the fundamentals have not changed and the forces driving the economy are still primed for a surge forward. This is not yet the full force recovery, but it should be here soon.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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