The New York Times has an interesting angle on the economy this morning, looking at how far the deep downturn has set back the forward march of progress (so to speak) and how hard it will be to catch back up.
The piece looks at the effects of idled capacity—the economy producing far less than it is capable of—and illustrates how painful even a recovery will be because of the deep hole we’re in:
This idled capacity, like baseball players after a winter off, takes time to bring back into robust use. So even if the recession miraculously ended tomorrow, economists estimate that at least three years would pass before full employment returned and output rose enough for the economy to operate at full throttle…
The mathematics are daunting. The shortfall is running at more than $1 trillion in annual sales and other transactions. Only once since the Great Depression has there been such a severe loss of output — in the 1981-82 recession — and after that downturn, it was seven years before the economy regained the lost production.
Louis Uchitelle reports that even if the U.S. economy returned to the growth rate of the last recovery, it would only add $350 billion a year to the economy, meaning it would take three years to return to pre-recession levels, by which time we’d have had a “lost” five years. But that growth rate is just not going to happen, as the Times more or less implies. We’ll be lucky if we’re not still falling tumbling downward by early next year. These things feed on themselves:
“Excess capacity, once entrenched, perpetuates itself, and that is what is happening now,” said James Crotty, an economist at the University of Massachusetts, Amherst. “Companies cannot hire workers to make more goods and provide more services until their sales go up. But people can’t buy goods and services until they are hired — so the excess capacity just sits there.”
This is a good stat:
With orders dwindling, manufacturers are using less than 68 percent of the nation’s factory capacity, the lowest level since records were first kept in 1948.
Wow. Sounds bad, but it’s not put in context by the NYT. What was that number in 2007, before the recession started? This Fed release says it was 80 percent.
And, of course, any recovery will be even harder on workers:
Labor is contributing hugely to the shortfall. More than 24 million men and women, or 15.6 percent of the labor force, are either hunting for work or working fewer hours than they would like to work, or are too discouraged to seek work, although they would take jobs if offered them…
Generating work for so many people would take several years, even if the nation’s employers stopped shedding more than 600,000 jobs a month, as they have done since December, and began hiring robustly.
“We have rarely been in this deep a hole,” said Nigel Gault, chief domestic economist for IHS Global Insight.
Good concept for a story.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.