Economic Recovery Threatened By A Dependence On Government Stimulus

While experts claim the recession ended over two years ago, housing prices and consumer confidence are still at a nadir, and the fragile US recovery is progressing at …

While experts claim the recession ended over two years ago, housing prices and consumer confidence are still at a nadir, and the fragile US recovery is progressing at a snail’s pace. The recovery is threatened by a dangerous dependence on government stimulus, along with the prospect of deflation, as companies are sidelined by the rising price of doing business in America. See the following article from HousingWire for more on this.

While the recession officially ended in June 2009, the recovery is in a tender stage still “vulnerable to shocks,” a Federal Reserve economist told business leaders Wednesday.

“It is going to be a long, slow recovery,” said Harvey Rosenblum, executive vice president and director of research at the Federal Reserve Bank of Dallas. In fact, it doesn’t yet feel like the recession has ended for many because of the slow growth. Rosenblum spoke at a real estate symposium sponsored by the North Dallas Chamber of Commerce.

Consumer confidence is still low with people concerned that their wages could decline in the coming months, he said, and a double dip in housing remains a concern as home prices continue to fall.

Housing prices, he said, may have another year or two to let out the air that was in the bubble.

Inflation, or the lack thereof, is also a concern to the nation’s economists. Inflation, currently at a rate of about 1%, is expected to stay steady. While the Fed usually complains that inflation is too high, now it is concerned that it is too low and is aiming for it to come in at a higher rate, Rosenblum said.

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Low inflation with declining inflation trend could mean a rising deflation “tail-risk,” he said.

Rosenblum said the economy is suffering from a “post-bubble disorder” that very well could have deflationary consequences. The major housing and financial crises suffered over the past couple of years have affected the strength of the recovery, he said. Because of that, the economy is growing at about half the rate that it would have normally coming out of a recession.

Manufacturing is leading the nation’s recovery while services growth, although coming back, isn’t as robust as the manufacturing sector. Jobs are growing at a rate of more than 2% in Texas compared to less than 1% nationally.

Most economists expect the unemployment rate to continue to decline as the recovery takes hold, but business owners shouldn’t expect sharp declines but rather a slow jobs recovery.

Companies that are more internationally focused have fared better than companies focused solely on the U.S. economy, he said.

Rosenblum did wear a yellow tie to his speech as a metaphor, he said, that things are sunnier right now than they have been in a long time.

“We are getting back on the track,” he said, “there were a lot of excesses,” he said noting the housing bubble and questionable mortgages during the heyday of the housing boom. “We are making some critical adjustments to things that were unsustainable.”

But he also questioned whether further stimulus was the way to propel the economy forward.

“We are like drug addicts waiting for more stimulus to make things happen,” he said. We are finding the need for “a bigger and bigger dose to get the same effect.” Washington, he noted, is divided on whether the nation needs more or less stimulus.

And that uncertainty has businesses sitting on the sidelines, unsure of what to do, he said, predicting that “the fog” may lift by next spring when the nation has a better feel for who is in power. The cost of doing business, whether via health care reform or tax changes bandied about by Congress, has them on hold. That, he said, is nothing the Fed can do anything about.

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.


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