Businesses that cut vast numbers of workers during the recession between 2007 and 2009 are operating with such lean staffing that they don’t have much room to cut. And consumers are already pinching pennies so tightly that they can’t pull back further without cutting into basic necessities.
A recession is still possible. If consumers and businesses were to suffer a sudden shock, such as a major national default in Europe, the U.S. economy could abruptly reverse. With the United States producing about $15 trillion a year worth of goods and services, there’s plenty of room to cut back.
But recent reports about economic activity — in contrast to surveys that measure Americans’ attitudes about the economy — are not pointing to recession.
“I continue to stick to my guns that we’re not going to fall backward into a recession,” said David Crowe, the chief economist at the National Association of Home Builders. “It’s just hard to figure out how you can get much lower than we are already.”
It is the simple math of recession. Consider housing, which is typically a major factor in recessions. At the peak of the last boom, Americans were spending $813 billion a year on residential investment. That figure bottomed out last year at only a $327 billion.
In other words, a major part of the story of the economic downturn was of half a trillion dollars in spending on new houses and apartment buildings vanishing from the economy.
Since hitting its low ebb, residential investment spending has rebounded only slightly, to a $336 billion annual rate this past spring. That means that, mathematically, it would be impossible for a new housing downturn to be as powerful an economic drain now as it was over the past several years; there isn’t $500 billion worth of housing activity left to vanish. Even if housing investment fell back to its low point from last year, that would subtract a trivial $9 billion in economic activity from overall growth.
The same dynamic applies in other areas. Americans bought more than 16 million cars and light trucks in 2006, before the economic downturn. That fell to about 10 million in 2009. The 6 million fewer cars that were sold that year was another major factor in the economic contraction, costing hundreds of thousands of jobs at automakers and their suppliers.
But auto sales have rebounded to only about 13 million a year, meaning that there is not as much room to fall if waning consumer confidence again leads Americans to become ultra-cautious.