We're living through the third installment of a depressing annual tradition: the summer slump
Summer is the season for blockbuster sequels. But even with millions of dollars in CGI and marketing, nothing at your local movie theater can match the country's most closely-watched repeat performance: the spectacular explosion of the US recovery.
In the first installment, the lights go on 2010. The economy has been growing for nine months. The stimulus act, boosted by temporary Census hiring, lifts job creation to a whopping 516,000 in May. But one month later, we lose 167,000 jobs. We lose 58,000 more the next month, followed by another 51,000 in August. By the end of the year, the stimulus is nearly exhausted. As the year enters its final frames, something strange happens. The economy shows signs of lasting life. We did it everybody. Roll credits on the Great Recession ...
... not so fast. Lights up on 2011, and we're greeted with a flourish of optimism. Jim O'Neill, Goldman Sachs's celebrated Asset Management director, sees 2011 as "the year of the USA." Economic forecasters are doing can-cans on cable TV. Corporations are swimming in cash, they proclaim. Home prices have nearly hit bottom. The real estate recovery is right around the corner. But, with the Census long gone, the role of summer spoiler is played by oil prices and petty politics. Revolutions and supply disruptions sweep the oil-producing world while oil demand steadily pushes up gas prices $4 a gallon. Congress, locked in a fierce tragi-comic debate over whether the United States should default on its debt, does less than nothing to help the weak private sector. For the second straight year, monthly job creation falls from the mid-200,000s to below the rate of population growth by summertime. But wait ... as the year enters its final frames, something familiar happens. GDP picks up. Job growth accelerates. The consumer is back!
Except, not. In the final installment of this trilogy (or are they remakes?) 2012 kicks off with a heartfelt homage to 2011. For the second consecutive year, manufacturing roars in the opening months, the economy adds more than 200,000 jobs in straight months, the Dow breaks 12,000, and TV pundits break out their high-kicks and confetti cannons. And, predictably, it all goes to hell. This time, a few different actors play the role of economy-killer, including: China, India, and Brazil, with a special performance by the entire miserable economy of Europe. Once again, Recovery Winter thaws. Once again, job creation in early summer has some economists whispering about a double-dip recession. Once again, the indebted private sector, once presumed to be healthy enough to ride out this recovery alone, wilts in the summer at the first sign of trouble.
This is a trilogy about debt. A fifth of American homes are still underwater, consumers are still depressed, and demand -- for homes, for cars, for debt, for stuff -- is still restrained. Every year, we believe the US economy has achieved escape velocity. We use this false belief to rationalize away the need for fiscal or monetary stimulus. Every year, every summer, as if on schedule, we're proved wrong. The spring ends and we see the recovery for what it truly is: a rickety economy, filled with debt and fear, surrounded by economic crises.
Americans consider our economy superheroic, but the vaunted U.S. private sector is not the superhero in these movies. It's the weakling, the endangered victim, the damsel in distress. It still need to be saved, and where are the hero figures most capable of saving it? The Federal Reserve has balked at another round of quantitative easing, and Washington is busy hailing work and productivity while exhibiting neither.
Like any blockbuster disaster film, this series unfortunately appears to have a good deal of iterative potential. Welcome to the Re-re-re-recovery.
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