A recent report from Rutgers University says it could take seven years to recover from recession.
The worst of the recession may be over, but it could still take the U.S. more than seven years to reach full recovery following what has become the country’s worst employment setback since the Great Depression, according to a Rutgers University report released today.
The recession’s staggering job losses, coupled with an ever-growing labor force, means it could be late 2017 before employment returns to the pre-recession levels of 2007, according to the study, conducted by Rutgers economists Jim Hughes and Joseph Seneca.
“We’re not trying to be overly dramatic here — we might even be considered optimistic,” said Hughes, who is dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers. “It’s not going to be an easy slog from here.”
Despite indications the pace of job losses is slowing, more than 7 million jobs have been shed since the recession began in December 2007, the report said. At the same time, the labor force grew, and is expected to continue growing, by about 1 million a year. That means more than 2 million jobs must be added every year for seven straight years. An economic expansion of that duration has only happened twice in the country’s history, the report said.
While the National Association of Business Economists and US government have indicated that the recession is over and recovery is upon on us, the employment unemployment forecast from Rutger’s suggests that our fragile economy may not be as healthy as some would like us to believe.
In his October 19, 2009 Wellington Letter, Bert Dohmen comments on the Rutgers study:
“…that [Rutgers Study] coincides nicely with our view that, at minimum, the current period of economic stagnation will last until 2017. That’s a number we predicted in late 2007, using a 17-year downturn, which is normal for a post-bubble “readjustment.” We measure from the year 2000, which by many measures, was the real top. “
Dohmen also points out that the GDP statistics being used to sell the recovery story don’t give us the entire picture:
“Economist David Malpass said that “real, per capita GDP” has declined 25% since the year 2000. That is an astonishing number. The word “real” means “after inflation.” In other words, factoring out inflation, we are all 25% poorer than nine years ago. This is another number that seems to confirm our thesis that the actual secular top in the economy was in 2000.”
Essentially, we have had no real growth in GDP or even the stock market since the year 2000! Most of the country was living in a Fed created bubble and didn’t even realize that their quality of life was going down.
Even with positive GDP growth and the housing market looking like it may be improving, we still have the little issue of mortgage delinquencies and foreclosures. In a normal economy, we have plenty of jobs available with new jobs being created regularly. As the Rutgers study forecasts, that will not be the case going forward. Bert Dohmen warns:
“There is a lot of enthusiasm around the idea that the housing market is bottoming. It could, but not under the current programs. On October 8, the Treasury Secretary said that 500,000 mortgage modifications have been made under the governments program. Well, that’s about one month’s worth of mortgage defaults. Their goal had been 4 million. So, they are a little short. The fact is that the program is entirely ill-conceived, too complicated, and counter-productive.
People who were defaulting the past two years were those who bought houses bigger than they could afford. Their income didn’t match the cash flow. But now the wave of defaults is from people who have lost their jobs. You can “modify” these mortgages all you want, but if a person has no income, he can’t afford a mortgage.”
Unemployment is a ticking time bomb, and no mortgage modification is going to help if the home owner lost his or her income stream. Real estate will continue to collapse because of continued job destruction despite what we are being told about recovery. Couple this with rising costs for essential goods, a collapse in retail consumer lending and increased taxes, and I’d say hopes of recovery are just that… hopes.
For those who live in reality, it’s obvious that the American people are living through the Greatest recession depression.