More on that "recovery" thing

It's become a mantra in the mainstream business press to say that we're in a recovery. But what does that mean? David Rosenberg has this to say (h/t pogge):

There are classic signs indeed that the recession in the U.S. ended last summer — output, sales, etc. But the depression is ongoing and the reason we say that is because real personal income, excluding handouts from the government, has barely budged. In fact, real organic personal income is nearly $500 billion lower now than it was at the peak 16 months ago and this has never occurred before coming out of any technical recession. It is a depression, as the chart below attests — that is the trendline for real household incomes, until the government comes in to top them off with handouts, subsidies and extended jobless benefits. The share of U.S. personal income being derived from Uncle Sam’s generosity has risen above 18% for the first time ever.

What's going on here? Simply put, a recession is defined solely in terms of overall GDP. If the GDP declines for two consecutive quarters, the economy is considered to be in recession; once it gets back on a solid growth track the recession is considered to be over. We normally think of a "depression" as simply a large recession, but I think Rosenberg is suggesting that it should be seen as a measure of how people are actually faring (what a radical idea!) So a "jobless recovery", or a recovery in which people are going back to work but at lower wages, would be a continued depression, because people's actual wages are depressed.

Chronic unemployment in the US

The situation is really bad:

Just one in five people who were out of work last summer have found jobs since then.

Of more than a thousand unemployed people surveyed by Rutgers University researchers last August, just 21 percent had landed a job by March, a followup survey reveals. Two-thirds remained "unemployed" according to the government's definition -- the rest gave up looking for work altogether, either going to school or retiring early.

From the Huffington Post, via Rajiv in this iTulip thread. I wonder what this is going to mean for the future? If there are a lot of chronically unemployed people, the social effects of this could be far-reaching.

Some comments on those green shoots

We're hearing everywhere that the economy is now recovering. Hugh McFadyen and his motley crew are using this as ammunition against the Selinger government, saying that there's no reason to run deficits any more, because the recession is supposedly over. Now technically that may well be true, since recessions are generally defined solely in terms of the overall growth rate of the economy. And there have been gains in jobs lately, too -- but what sort of jobs are they? Armine Yalnizyan at Progressive Economics has some comments:

Forget total employment numbers, it’s the types of jobs coming back that count.

There is a shadow side to this recovery that may undo it in the end. Uncertainty is fast becoming the new normal in the labour market, and that has long-term implications for aggregate demand, household indebtedness, and the rate of defaults on mortgages and credit cards.

The latest Labour Force Survey results show that — though there are still 253,000 fewer jobs than when the recession began in October 2008 — employment growth continues its slow path upward. As Erin Weir noted on Friday, this month’s rising head count is driven by part-time jobs.

By March 2010 there were 47,800 more part-time jobs than when the recession began, but we are still down 300,000 full-time jobs. That mirrors another shift from stable to unstable jobs: more temporary jobs, fewer permanent ones.

And that's based entirely on "pure" economics, and doesn't take into account the fact that oil is likely to get a lot more expensive soon. Throw in that element and things could get quite unpleasant indeed.

Not clear sailing for the economy yet...

China's being cautious, so markets are running scared:

The Canadian dollar plummeted more than a cent Wednesday and markets dove on concerns that China will curb bank lending and slow the economic recovery.

Traders were responding to a newspaper report that some Chinese banks have been ordered to stop lending for the rest of January after exceeding credit limits.

The Canadian dollar closed down 1.51 cents to 95.51 cents US. Oil ended the day off $1.40 at $77.62 US a barrel. The February gold bullion contract on the Nymex closed down $27.40 to $1,112.30 US.

The markets also ended lower, although they had recovered somewhat from their bigger losses earlier in the day.

The S&P/TSX composite index in Toronto was down 84.1 points to 11,679.3.

The Dow Jones Industrial Average was off 122.28 points, or more than one per cent, at 10,603.15, and the Standard & Poor's 500 share index was down one per cent at 1,138.04.

The Nasdaq composite index ended down 29.15 at 2,291.25.

The Canadian dollar fell against the U.S. dollar, which strengthened as investors sought safety in American short-term debt. Traders also saw little cause for Canadian interest rates and the loonie to appreciate, after a report showing the annual inflation rate rose to 1.3 per cent, or less than expected, last month.

Scotiabank deputy chief economist Aron Gampel told CBC News that investors are now realizing their expectations about the rate of recovery and the growth in corporate earnings may have been overly optimistic.

"Even through the earnings growth is there, the expectations haven't been met," he said. "We've been raising the bar on expectations because the economy seems to be taking off and everyone's expecting profits to rebound quarterly, so any disappointment is having some impact on the outlook and clearly it takes some of the shine off of the markets and the currencies."

From the CBC. I still think there's a significant chance of a double dip recession, or at least a lengthy "jobless recovery".