The Commerce Department issued a quarterly report Friday that said the economy expanded at a comfortable rate of 2.8 percent during the last quarter of last year. The figure suggests that, after the slowdown for much of 2011, the recovery has begun to accelerate again.
But the report and other recent economic data suggest a stark divide between the fortunes of businesses and people. Companies are thriving again, but households have come under financial stress, creating dissatisfaction that, in a presidential election year, could have far-reaching effects.
At the broadest level, in terms of size, the economy has recovered from the downturn. With this year’s growth, the nation’s GDP, or the value of all goods and services it generates, exceeds pre-recession levels. The nation has recorded 22 straight months of job increases, including the addition of 200,000 jobs in December.
But total employment numbers continue to lag far behind the pre-recession levels recorded more than three years ago.
The employment level is down about 6 million from its peak of about 146 million just before the downturn.
“That’s why people feel we’re still in recession,” said Gus Faucher, senior economist at PNC Financial Services.
Wage increases have been modest, too.
“There has been really grindingly slow improvement in the prospects of getting a job and almost no prospects of getting a raise,” said Josh Bivens, an economist with the Economic Policy Institute, a liberal think tank.
Friday’s report underscored the pressure on households.
Although consumers are spending more, they are also saving less, with the personal savings rate dropping for each of the last four quarters.
Moreover, disposable personal income is slightly lower, in inflation-adjusted dollars, than it was a year earlier.
“That’s a very disappointing outcome,” said Paul Ashworth, chief U.S economist for Capital Economics. “You would expect that the income earned by everybody would be going up.”
The squeeze on consumers stands in stark contrast to the health of businesses. Not only is the economy growing in terms of what it produces, but corporate profit margins haven’t been higher since the 1960s.
And Friday’s report showed another sign of health: Businesses are swiftly investing in equipment and software. Those investments were up 5 percent in the last quarter of 2011 and 16 percent the quarter before that, according to the report.
Conventional economic theory suggests that it’s only a matter of time before the health of businesses will lift the fortunes of workers as firms begin to hire more people, putting upward pressure on wages.
But although profits are high, many companies appear to be reluctant to hire, at least for now.
“Businesses have just been really really scared by what we’ve been through,” Faucher said. “Once they’re convinced things won’t go to hell again, there will be some demand for labor.
“We’re getting close to that point,” he said.
At least some economists, however, were skeptical that the economy would continue to grow as fast as it did during the last quarter of 2011.
That rate, 2.8 percent annually, is the fastest recorded in a year and a half. To put that in perspective, over the last 60 years, the average historical growth rate for the U.S. economy has been about 3.2 percent.
But economists questioned whether that relatively modest rate could be sustained.
They noted that consumers could decide to embrace thrift again, as they did shortly after the downturn. That would drive down growth.
Moreover, the other key reason for the recent growth in GDP is that companies built up inventories of goods. Several economists suggested that those inventories will sit on shelves, leading companies to slow down production.
“The current build rate appears out of line with demand,” said Steven Ricchiuto, chief economist at Mizuho Securities USA.
He said the inventory buildup was largely auto-related.
Finally, a slowdown in government spending, which dropped nearly at the rate of 5 percent in the last quarter, could continue, adding to downward pressure on the growth figure, economists said.
State and local government spending, as well as federal spending, fell in the fourth quarter, according to Friday’s report.
Over 2011, the economy grew at a rate of 1.7 percent, a dismal result after many forecasts of robust growth made at the beginning of the year. A combination of the earthquake in Japan, the monetary troubles in Europe and the debt-ceiling standoff in Congress put the economy off course.
Now, many forecasters and businesses are fearful of being too optimistic.
“Even though things feel better at the moment, people don’t want to make the same mistake,” said Mark Zandi, chief economist at Moody’s Analytics. “The forecasts are much more cautious. This collective psyche is very fragile.”
Moreover, he said, fear about the potential impact of Europe’s economic woes and the still-
troubled U.S. housing market assert a steady drag on the economy.
The fall in housing values is a significant contributor to household stress as well. Home values have continued to slide since their renewed plunge in 2010, according to the S&P/Case-Shiller Home Price Indices.
“As long as home prices are falling, and they still are, it’s hard to get enthusiastic about anything,” Zandi said.
Staff writer Sarah Kliff contributed to this report.