What was being described by many economists just a few weeks ago as a robust recovery has become hardly any recovery at all. Economist Joseph Stiglitz recently said that improvement in global GDP may not be sustainable. He voiced concern that the anticipated expansion could turn into a “W-shaped” recovery which would mean several more years of misery. He also said the American attempt to improve its economy could be short lived. “We did have a very big stimulus, and that stimulus has added to economic growth and will be adding in the current quarter. But the question going forward in 2011 is the stimulus is coming off, and that’s a negative.”
The IMF’s view of the future of the economy is not much more encouraging.
According to MarketWatch, IMF Managing Director Dominique Strauss-Kahn said he still sees “serious downside risks” to the world financial system and that the recovery will be sluggish and possibly jobless.
No matter how often it is said, the employment issue cannot be underestimated. This recession has been so deep that a “jobless” recovery may not be a possibility. Consumer spending, almost 70% of US GDP, has hit unprecedented lows. A 10% unemployment rate and ongoing consumer leverage, which is causing rising defaults and even personal bankruptcies, may kill any recovery in its tracks.
Businesses are still cautious enough that there is virtually no research that shows that companies will begin a robust hiring process in 2010. Earnings at most big companies are being driven by cost cuts and not sales growth. Anecdotal evidence is that small businesses, with no access to credit, may not recover this year or next. That will mean more layoffs in the portion of the economy that often drives innovation and employment. None of the existing stimulus packages in US aggressively addresses the liquidity needs of firms that have under 100 workers.
The IMF caution is being articulated ahead of the G-20 to encourage the group to keep interest rates low and access to governmetn capital high. So far, those policies have not created jobs.
Douglas A. McIntyre
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