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US Recovery Barely Gets Passing Grade

By David R. Francis / December 29, 1992



THE recession in the United States is officially over.

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But the economic recovery that started 21 months ago has been strange. For one thing, the expansion has been so slow that only 315,000 private-sector jobs have been created since the number of jobs began to increase last January.

"This is the poorest percentage rebound in this key labor market barometer for the first 10 months of any recovery since the second World War," notes Lacy Hunt, chief economist of Carroll McEntee & McGinley Inc., a securities firm.

The gain of 0.4 percent is far less than the 2.6-percent average increase for the first 10 months of other postwar recoveries, or even the prior weakest improvement of 1.7 percent in 1969-70.

An official panel of economists determined last week that the nation's ninth postwar recession ended in March 1991. The National Bureau of Economic Research's dating committee acted after the Commerce Department estimated that gross domestic product for the third quarter rose at a 3.4-percent annual rate. This meant that the nation's output of goods and services has just risen above its peak at the start of the recession in July 1990.

To President Bush's regret, the recovery lacked the vigor of a proper expansion.

Even now, the more pessimistic economists can point to many negative factors in the economy. Dr. Hunt, for instance, argues that the job gain since January is "simply not meaningful." He points out that without a rise of 332,000 in the number of people employed by temporary help agencies, private employment would have fallen since January. Most of these workers get few, if any, benefits such as paid vacations or health insurance.

"The ongoing reliance on temporary workers is a sign that managers do not yet have faith in the potential for a lasting, vigorous expansion," he says.

Aside from temporary help, job losses in manufacturing, mining, retail trade, wholesale trade, transportation, and public utilities exceeded job gains in finance, insurance, and real estate, medical care, personal services, and other business services. Since shrinking categories pay better than expanding ones, Hunt concludes the erosion of wage and salary income has not ended.

Yet consumers' overall income has been expanding. Personal incomes rose 0.2 percent in November to $5.15 trillion at a seasonally adjusted annual rate. It was the tenth month in a row that consumers had more money in their pockets.

Even wages and salaries, a key element of total personal income, were up in November by 0.7 percent. And consumers have been spending their money faster than their income has been growing. Consumer spending increased 0.5 percent in November to an annual rate of $4.2 trillion. Over the months of September, October, and November, retail sales alone climbed 3 percent. As a result, the savings rate has dropped to 4.2 percent.

Early newspaper reports indicate that Christmas retail sales went well. But the Commerce Department will not release its more comprehensive figures for December until Jan. 14.

Philip Braverman, an economist with DKB Securities Corporation, predicts the post-Christmas sales slump will be worse than normal: "Consumers will respond to adverse circumstances by curtailing spending. They will have to pay down Christmas debts. The extra income gained from accelerating bonuses, profits, and other income into 1992 (to avoid a 1993 tax increase) will evaporate .... And there will be further labor shedding."

The consensus of 50 economists surveyed by Blue Chip Economic Indicators (Sedona, Ariz.), however, sees a modest increase in the pace of economic growth to 2.7 percent in 1993 from 2 percent in 1992. They expect the annual rate of growth in output to reach 3 percent in the second half of the year. That's still not much compared to the 6 percent annual rate that has prevailed in the early stages of other postwar recoveries. The unemployment rate won't come down rapidly, economists say.

But compared to both Europe and Japan, the US is doing well. Unemployment is rising across the Pacific and the Atlantic.

"The American economy is well on the way to resolving its debt problems," maintains Richard Hokenson, an economist with Donaldson, Lufkin & Jenrette. "Japan and Europe have not yet begun that process."