Thursday, October 22, 2009

The Big W recovery

There actually was a worst recession since the great depression than the current one. That was the recession of 1980-82. This was a double dip recession where inflation-adjusted personal income in Washington state fell by 11% in the first quarter of 1980, recovered for a year and then dropped again by another 13.7% through the end 0f 1982. This is the famous W recession that some economists are now predicting for the U.S. The economy drops, recovers and drops again. A W recession could last for another year.

The recovery from the 1980-82 recession was a jobless one. Unemployment peaked at over 12% in the last quarter of 1982 and exceeded 20% in many rural timber counties. Unemployment didn't fall below 10% for over a year after the official end of the recession and remained above 8% for another three years.

Economists are expecting a similar scenario for the current recovery and many expect it to be worst. China appears to be the force that is actually lifting the world out of the downturn. India, the Far East and most of Europe are clearly on the upswing. We are lingering behind but exports to the rest of the world are likely to increase new business investments and expand exports. This should at least increase the number of hours each employee works and perhaps create new jobs as well.

But we may soon see a new wave of foreclosures, not related to sub-prime loans but from extended period of unemployment. Furthermore, the nature of unemployment has changed as well. The percentage of the unemployed who are considered by employers "permanently unemployed" is the highest in history. On top of that, the average length of unemployment is now 26.2 years - higher than than both the 75 and 80-82 recession. This combined with a lack of political will for a second stimulus package could be the second V in the W.

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