What’s Wrong (and Right) With this Recovery


Many people believe that beneath the jitters surrounding the European debt crisis and geopolitical unrest, economic fundamentals are strong and the economy is on a path to a sustainable recovery. But, there are worrying signs that the recovery is fragile and based on temporary government support to consumption and a reflation of some asset markets. Once consumption-oriented stimulus fades, there is a risk that the economy will face a double-dip recession.
Last week, I shared our economic outlook with some folks at the semi-annual conference of the Hardwood, Plywood, and Veneer Association, a trade group that represents the vast majority of the plywood and hardwood industry in North America. Their businesses face long-run challenges of maintaining competitiveness in a country with no coherent industrial policy and short-run challenges of a housing dip and low demand for wood products.
It was a Main Street crowd and they had a better comprehension of the risks to the recovery than many politicians in Washington or analysts on Wall Street. They were painfully aware of problems of high unemployment, state and local government cutbacks, the uncertain tax and regulatory environment, and the risk of a relapse in housing prices.
To view a slideshow that outlines our economic outlook, click here.

— Samuel Sherraden


17 comments on “What’s Wrong (and Right) With this Recovery

  1. Helena says:

    US companies moving operations overseas…and recent developments with the Chinese battery company Build Your Dreams BYD show they are successfully setting up operations in California, creating some good jobs in the auto sector.
    Steve Clemons highlighted this Shenzhen-based company in TWN when he visited there last year.
    The company is presently working on a pilot project with a taxi fleet in Shenzhen to test new electric cars on the road.
    So far so good, and it’s encouraging to see what’s happening in California.


  2. Don Bacon says:

    WigWag: I was thinking that only investors could be happy about high unemployment with its higher productivity and profits, and considering your quote: “The U.S. economy is bouncing back far faster and more strongly than anyone anticipated.”
    And now this: US stocks cascaded to their lowest close since February on Friday after May’s jobs figure slammed investors.
    So what do I know.


  3. Don Bacon says:

    news report (VOA):
    The U.S. unemployment rate dropped two-tenths of a percentage point to 9.7 percent in May as 431,000 jobs were created.
    That is the biggest net gain in jobs in years, but Friday’s report from the Labor Department says most of those jobs are temporary workers hired to conduct the census.
    Private employers, the backbone of the economy, added just 41,000 jobs, which is much less than the previous month. //
    The economy needs 100,000 new jobs a month (net) just to keep up with population growth.


  4. The Pessimist says:

    A few years back I read somewhere that Special Forces
    berets were being, wait for it… Made in China.


  5. Don Bacon says:

    news report (Foreign Policy):
    The US State Department gift shop is selling US flag pins made in China. “As you proudly display your American flag pin on your breast, you’re also wearing a symbol of the new global economy.”


  6. Don Bacon says:

    Outsourcing is an important way for US corporations to increase productivity and profits. There are many outsourcing firms — here’s one.
    China FOB:
    Welcome to the electronic home of China FOB. We are an experienced overseas sourcing company. If you have been considering buying direct, please let us help you with your project. As an American company in China, we are able to offer you the best of both worlds. Your concept and our resources form an unbeatable combination.
    China FOB is based out of Miami, Florida with a competent and experienced team of professionals who have been doing business in China for decades. We have offices in both Miami and Ningbo China with a full staff of English and Chinese speaking professionals. China has become the center for world manufacturing of high quality, cost effective production. With two fully staffed offices and multiple affiliations throughout the world, we have the experience, knowledge, and long-term factory partnerships to connect you to the most efficient source for your products.


  7. Don Bacon says:

    And that’s what’s wrong with the “recovery.”


  8. The Pessimist says:

    That’s what he said, that is not what the US energy
    policy will become until all the easy profits are wrung
    from coal, oil, gas and nuclear. Consumables are
    fundamental to profit, and photons are not yet


  9. Don Bacon says:

    **””The world is passing us by.”**
    U.S. Energy Secretary Steven Chu, Nov 30, 2009:
    “America has the opportunity to lead the world in a new industrial revolution,” Chu told business leaders, political leaders and engineers at a Clemson University symposium.
    But, he said, “The world is passing us by. We are falling behind in the clean energy race. … China is spending $9 billion a month on clean energy … China has now passed the United States and Europe in high-tech manufacturing. There is no reason the United States should cede high-tech manufacturing to anyone.”
    Chu said the nation must decrease its dependence on foreign oil and mitigate against global warming by decreasing carbon emissions by 80 percent by 2050.


  10. Mr.Murder says:

    OT again:
    Too far upstream for this to go in the most recent Cuba thread.
    “Buena Vista Social Club, 1999
    Wim Wenders


  11. Mr.Murder says:

    OT: ever since moving the RSS feed on the menu tab closer to the front it freezes me, that, or loading ads and facebook on your page.


  12. Carroll says:

    “Last week, I shared our economic outlook with some folks at the semi-annual conference of the Hardwood, Plywood, and Veneer Association, a trade group that represents the vast majority of the plywood and hardwood industry in North America. Their businesses face long-run challenges of maintaining competitiveness in a country with no coherent industrial policy and short-run challenges of a housing dip and low demand for wood products”
    Been there done that. I went to a GATT conference in Geneva in the 60’s when my father was President of the Hardwood,Plywood and Veneer Manufactures Assoc……US businessmen testifed
    umpteen times in Geneva about the trade problem. And also about the textile industry and cement and brick industry..did no good whatsoever.
    The decline in US business can’t be laid ‘all of sudden” on the current US economy…the inability of the US to compete with cheap imports and cheap labor is 40 years old….and Washington is responsible for it.
    Now we are gonnna have that perfect storm. Having raped and denuded US industry for 40 years, turned out previously skilled labor force into third world day laborers and turned the US from producing wealth to just moving it around a selct cricle on WS.
    America’s bank account is empty and it’s factories are for the most part closed and it’s people are unemployed.
    Good damn luck DC. You should have listened to the people smarter than you 40 years ago.


  13. ... says:

    ask yourself this… is the crisis in europe based off the economy or off banking shenanigans? was the crisis in 2008 based of a result of the banks playing fast and loose with everything or was it purely economic driven? if you think like me it is a banking game where it’s just a matter of time when the next ”’crisis”’ takes place..


  14. Don Bacon says:

    And I didn’t even get into the outsourcing of jobs overseas which is now a major alternative for corporations who want to reduce payroll and increase profits.
    This “jobless recovery” freaturing higher productivity and profits is certainly contributing to WigWag’s rushing in of money — leading to the startling fact that the financial sector profits make up 35.7% of all domestic corporate profits (slide 11). The rich get richer and the poor get poorer. Some recovery.


  15. Don Bacon says:

    Sure, profits and productivity are up because employees are being squeezed and unemployment is high, despite the job creation claims that Zakaria makes. New jobs are always created — it’s the unemployment and underemployment that is interesting.
    from the most recent BLS Report (May 7):
    Among the major worker groups, the unemployment rate for whites (9.0 percent) edged up in April, while the rates for adult men (10.1 percent), adult women (8.2 percent), teenagers (25.4 percent), blacks (16.5 percent), and Hispanics (12.5 percent) showed little or no change. The jobless rate for Asians was 6.8 percent, not seasonally adjusted.
    [Thousands of temporary census jobs were created recently.]
    The number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up over the month, reaching 6.7 million. In April, 45.9 percent of unemployed persons had been jobless for 27 weeks or more.
    The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was about unchanged at 9.2 million in April. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
    About 2.4 million persons were marginally attached to the labor force in April, compared with 2.1 million a year earlier.


  16. WigWag says:

    I think that New America Foundation Board member, Fareed Zakaria, has a wiser take on the state of the American economy than Samuel Sherraden does.
    In his column in the Washington Post on May 24th, Zakaria makes the following interesting points:
    1) The U.S. economy is bouncing back far faster and more strongly than anyone anticipated and it is far more robust than the economies of Europe and the developed nations of Asia.
    2) Since February, the American economy has created 500 thousand new jobs.
    3) Since this time last year, American exports are up 20 percent (50 percent to China).
    4) Consensus estimates call for a growth rate for GDP of 3.5 percent.
    5) The last round of quarterly earnings reports for S & P 500 companies were far better than expected.
    6) Washington’s policy of shock and awe as directed by Geithner, Summers and Bernanke worked; the approach taken in Europe (mostly under the direction of the French and Germans) failed.
    7) Money is rushing out of Europe and into the dollar; the dollar’s role as the world’s reserve currency has been vouchsafed for at least another generation.
    8) Within a few years America’s budget deficit, which is currently 12 percent of GDP, will fall to 5 percent of GDP even if the government does not reduce expenditures or increase revenues as long as modest levels of economic growth are achieved.
    9) U.S. debt at 60 percent of GDP is not particularly large and is smaller than the debt of many European nations and much smaller than the debt of Japan which has far worse growth prospects.
    10) Astoundingly, America pays a lower percentage of GDP to finance its debt today than it did in the days of the Clinton Administration when the government was actually running a budget surplus. The ramifications of this are staggering.
    11) Productivity growth in the United States is superior to productivity growth in most of its developed competitors.
    12) Foreign Governments and individuals are literally falling over each other in the mad dash to buy U.S. treasury notes and bills.
    The whole op-ed can be read here,
    Zakaria does point out that the advantage that the United States is enjoying won’t last forever and that it can’t be sustained in the face of bad decision making.
    But the reality is that Geithner, Summers and Bernanke have done a remarkably good job; they should be thanked, not excoriated.
    The fundamental problem that the United States faces is that the junior partners it enlisted to help run the world since the collapse of the Breton Woods system are now in deep trouble. Japan and Europe have serious structural problems rooted in their failing cultures as much as anything else. With Europe and Japan likely to be increasingly marginalized and irrelevant, the question is where the United States should look for new junior partners.
    There are few obvious candidates but there are some; including India.
    The good news is that the United States has some time to figure this out. The economic misfortunes of the rest of the world have negative consequences for the United States; a rising dollar hurts American exports and thus the jobs outlook. Troubled economies in Japan and Europe mean less demand for American exports.
    But on balance, America’s superior economic position vis a vis the rest of the world is a net plus. It provides some breathing room until we get a new President, strategically sophisticated enough to understand what’s happening to the political economy of the world, and to recruit the new allies who can assist the United States in securing its prosperity and theirs.


  17. Don Bacon says:

    I would advise the Hardwood, Plywood, and Veneer Association that they should be concerned that their representatives in Washington, instead of funding a Manhattan Project to help the US build a green economy, recently passed without debate a $567 billion budget authority for the Department of Defense (DoD) and the national security programs of the Department of Energy (DOE). This doesn’t include the President’s supplemental request for $33 billion for the current wars and $4.5 billion in war-related foreign aid, which will also pass.
    This is at a time when the national priorities noted in the recent National Security Strategy are only (1) nuclear weapons and (2) terrorism, neither of which requires anywhere near such obscene spending levels for the military-industrial complex.
    In other news:
    College graduates have discovered that on-campus recruiting at business schools this year is off by 65 percent, and that when jobs are offered, the starting salaries are lower than last year. Andrew Sum, economics professor at Northeastern University, reports that almost half of those graduating this spring are only finding jobs that don


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