Last month, the National Bureau of Economic Research (NBER)
quietly announced that the 2001 recession, which began in March,
had officially ended eight months later in November.
Last month, the National Bureau of Economic Research (NBER) quietly announced that the 2001 recession, which began in March, had officially ended eight months later in November.
Yet even though the recession has been more than 20 months, the economy’s growth has been modest and uneven, unlike typical recoveries since the end of World War II when the economy picked up quickly and jobs increased.
This unpredictability begs the questions: (1) Why has the recovery been disappointing? and (2) When will the outlook improve?
Why Has the Recovery Been Disappointing? Perhaps the most pressing factor weighing down the economic recovery has been a lack of job growth.
In November 2001, the unemployment rate was 5.6%. Since then it has risen to 6.2%, and payroll employment has fallen by more than one million jobs.
So how has the economy been expanding since 2001? This recovery has been characterized as a “jobless recovery” because most of the growth in gross domestic product (GDP) since November 2001 has been due to productivity gains.
In simpler terms, American workers are producing more goods and services for each hour they work, mostly because of technological advances.
Thus, the need for workers has not grown along with the economy, and companies have been able to eliminate jobs while still meeting demand for products.
Most experts believe that the economy will need to grow at a faster rate for unemployment to return to more favorable levels. When Will the Outlook Improve?
The announcement that the economy is expanding should offer a small boost in the form of renewed confidence.
Consumers, investors, and businesses that were waiting for an end to the uncertainty may be more likely to move ahead with plans that were on hold. In addition, recessions are becoming rarer – the most recent one marked the end of a nearly 10-year expansion.
NBER has made no prediction about the likelihood of another recession, but some economists believe that only an extraordinary shock could plunge the economy back into recession any time soon.
This optimism is supported by forecasts from the Congressional Budget Office, which estimates that GDP will grow by 2.5% in 2003 and 3.6% in 2004.
Recessions are a part of ordinary economic cycles and can lead to increased efficiency that opens doors for future growth.
With steady economic expansion expected in the coming years, now may be a good time to position your portfolio to capitalize on emerging long-term trends.
Consult your financial adviser, or your attorney, accountant or tax adviser with questions.
Dan Newquist is a Registered Representative with Linsco/Private Ledger and has an office in downtown Morgan Hill.
