That graph above? It should feel familiar. It's a snapshot of our great muddle of a recovery.
The line tracks a measure of U.S. economic health from 2003 to today, accounting for GDP and indicators like employment growth, consumer confidence, and the stock market. It's a story of slowish growth, followed by a deep plunge, a heartening bounce-back (especially for financial markets) and, finally, the muddle.
That's America's story, but it's not exclusively an American story. It describes just about every advanced economy's two-step recovery: (1) Bounce back and (2) Back to zero. That has been the story for Canada, held back by a weak U.S.; for Australia and Japan, held back principally by a weakening China; and for the strongest economies in Europe, which are buying fewer goods from China, which is hurting Australia, and around we go.
As the Brookings Institution reported this month, the advanced world's economic recovery is sliding toward stagnation, in unison. [What's this "overall growth index? Scroll to bottom.*]
Just because each country is tracing the same sickly line doesn't mean we're all suffering from similar maladies. Europe is uniquely constrained by a common currency that's working well for nobody. Australia is battling a Chinese slowdown. The U.S. is proving that it's hard to grow without a housing market.
These crises are wide-ranging, but the upshot is that the world economy needs a power engine. After the Great Recession, China passed a monster stimulus, Brazil went right ahead with its borrowing, and world trade was surprising buoyant considering the scale the global housing and equity meltdown. That's one reason why export growth returned so quickly to the U.S., Canada, and Europe. But today, every strong economy is getting weaker at the same time, and when you look around the world, it's hard to see an emergency booster engine lying in wait.
As the WSJ beautifully graphed today, the odds of a recession are climbing everywhere and the expectations for growth are falling everywhere. In fact, if any country is likely to provide a surprising boost to the world economy in the next year, it's ... right here, in the U.S., where residential investment finally seems ready to climb out of its five year hole and improve the earnings and spirits of the world's most largest national engine of consumption. For the world's sake, we should hope for a housing recovery very, very soon.
*Brookings methodology [pdf]: Overall growth = Business Confidence, Consumer Confidence, Employment, Exports, Imports, Industrial Production, GDP Growth, Equity Markets, Credit Growth, Ted Spread (difference between the interest rates on interbank loans and short-term U.S. government debt).