The $14.3 trillion U.S. economy is like a battleship, ready to engage, but difficult to turn around. Economic recovery appears on course, but the “Happy Days are Here Again” chorus remains adrift and seasick.
Recovery criteria are highly specific, as follows:
Rising stock prices and earnings mean little to idled workers. While 290,000 found jobs in spring 2010, the national jobless rate reached 9.9 percent. Black Americans have suffered most. Nearly 25 percent of those without high-school diplomas (and teens) are without work. Discrimination has plagued the educated, say experts, causing a 7.4 percent unemployment rate for black college grads. Science and technology-related fields, less vulnerable in downturns, are likely to attract more students and job seekers.
For the jobless, recovery will mean returning to a living-wage job, with career planning again possible.
Big business and investors
Corporate America is out of survival mode. Earnings in 2010 are solid. Also, out of 7,000 publicly held companies, only 48 cut dividends in 2010. Dividend increases put an additional $6.4 billion into the hands of shareholders. The Dow Jones Industrial Average has risen 71 percent from its 2009 low; the S&P 500 index is up 80 percent; the Nasdaq is up 99 percent. For the first time, many technology companies are selling bonds, gathering cash to finance acquisitions.
For big business and investors, recovery will mean robust earnings, realistic stock and bond valuations, and stable yields, within favorable borrowing, tax and regulatory climates.
Industrial output has improved but, collectively, U.S. factories, mines and utilities were still at 73.2 percent of capacity in early 2010. Productivity rose 3.6 percent in the first quarter, but with a thinned-out labor force working at full throttle.
For manufacturers, recovery will mean more orders, and a renewed focus on the production of goods, rather than the expansion of a service-based economy.
Autos are a bright spot, with 2010 sales predicted at 11.7 million units. Ford Motor, the sole U.S. non-bankrupt car company, with an 18.2 percent U.S. market share, became Europe’s top-selling brand in 2010.
For the auto industry, recovery will mean a return to pre-recession annual sales of 16 million cars, with auto loans available.
New home sales in March were up 24 percent from the previous year. Existing home sales rose 16.1 percent from a year earlier, but the median price fell to $170,000. Foreclosures continue nationwide. In South Florida, first-quarter 2010 foreclosures rose 71 percent from the same quarter 2009.
For the housing industry, recovery will mean more sales and construction, fewer foreclosures, and available mortgages. A big worry: Fannie Mae and Freddie Mac still underpin U.S. mortgages, and will require future taxpayer support of $400 billion.
Cash flow shortfalls and credit contraction are the terrors of downturns. In spite of near-zero interest rates, banks have been slow to lend or expand credit lines to businesses, professionals and service providers. In their defense, banks have had to tighten lending criteria. Through the first week of May 2010, 65 banks failed.
For small businesses, recovery will mean borrowing at low interest rates within a growing economy. Congress is considering a $30 billion credit package for smaller banks to strengthen business lending.
States and cities
States and municipalities saw a record 6-percent drop in 2009 tax collections. Many states face multi-billion dollar budget gaps in 2010 that will slash jobs and services. To their regret, hundreds of municipalities invested in interest-rate swaps that have lost them millions of dollars.
For states and cities, recovery will mean rising tax collections, and the ability to reinstate job-creation tax breaks for companies.
Those with debt are in good company. The U.S. government will pay about $209 billion in interest on its debt in 2010. Throughout 2009, burdened consumers decreased household debt by 1.7 percent, the first annual drop since 1945.
For debtors, recovery will mean continued low interest rates, low inflation, and fair repayment and credit policies.
One-half million new businesses are formed each year, creating 3.3 million jobs. But a major source of start-up capital, home equity loans, has dried up, leaving entrepreneurs unfunded.
For entrepreneurs, recovery will mean a return to risk-taking by surplus capital, and the launching of more Initial Public Offerings.
Consumers, students and retirees
Since consumerism accounts for two-thirds of the U.S. economy, confident spenders are critical to recovery. Fear is in retreat. In March 2010, consumer borrowing rose by $1.95 billion, saving is declining, and personal incomes are up 0.3 percent.
For consumers, students, and retirees, recovery will mean an economy growing at 4 percent, a level necessary for job growth. For students, recovery will mean student loans. For retirees with savings, recovery will mean higher interest rates.
The financial sector and banks
Many on Wall Street lost jobs, and the financial sector required a taxpayer bailout of $89 billion, but 2009 banker bonuses and pay equaled that of previous years. While leverage, risk taking, and greed are the subjects of proposed banking reforms, trading in opaque derivative securities is uncurbed.
For the financial sector and banks, recovery will mean a return to the “good old days” of lax financial and regulatory oversight, easy credit and unrestricted pay packages unattached to profits or ethics. The Great Recession was a real spoiler.
Few economists foresee a double-dip downturn, but most predict 2010 growth of only 3 to 3.5 percent, with anemic job creation. The good news: Inflation remains low. Also, historically, the Federal Reserve is unlikely to raise interest rates until unemployment falls a full percentage point.
There are many weak links in the U.S. recovery chain, including Europe’s sovereign debt crisis, the slowing of Asia’s economic boom, oil prices, and the threat of terrorist activity.
No nation can decouple from the world economy; recovery is a family affair.
J.R. Rosskamp, M.B.A., is an investor, entrepreneur and managing director of Veritas Partners, Inc., a business consulting firm.