An uneven economic recovery, at home and abroad

The past few months have reminded Americans that progress can mean two steps forward and one step back. The death of Osama bin Laden has lifted President Obama’s approval ratings — temporarily — but also increased fears of a retaliatory attack on U.S. soil. Economic recoveries abroad are bringing job growth — and higher oil prices. In the eighth “How We’re Doing” Index, scholars at the Brookings Institution looked at the past five quarters and found an uneven economic recovery that is much different in Detroit than in Tampa — and quite dissimilar in Athens and Beijing.

The key indicators suggest that the economic recovery in the United States continues to move forward. Output is rising, credit conditions are thawing and firms are hiring. Consumer and small-business confidence remain low by pre-recession standards, which is perhaps not surprising with the unemployment rate at 9 percent. But these measures are well above the range seen during the recent recession. Similarly, approval ratings for Congress and the president have improved slightly relative to last year’s lows. (The recent spike is likely to disappear given the enduring concerns about jobs.)

Loading...

Comments

• Weigh In
• Corrections?

Personal Post

But the degree to which this national perspective resonates with a given American family depends on where it resides. Even among the metropolitan economies hit hardest by the Great Recession, the differences in the speed of recovery have been striking. Areas heavily linked to the auto industry, such as Cleveland and Detroit, have benefited from the resurgence of manufacturing activity since 2009. On average, the unemployment rates of these urban economies have fallen two percentage points in the past year — double the national decline. Conversely, metro areas that were hit hard because of their exposure to the housing bust, such as Las Vegas and Tampa, have been slow to recover, with their housing markets still facing significant structural problems. Unemployment rates in many of the areas hurt by the housing bust are little changed from a year ago.

Meanwhile, the global economic recovery is also uneven. Many emerging economies, such as China and India, snapped back quickly and are operating at close to full capacity. But our trading partners in the advanced world are moving back to normal much more slowly. Indeed, in some European countries, particularly those undergoing substantial fiscal adjustments — such as Greece, Ireland and Portugal — the economic recovery is slower than our own. Uncertainty looms over the rest of the euro area as turmoil may worsen.

Inflationary pressures across countries mirror those of activity. In emerging market economies, strains on capacity and commodity price increases are pushing inflation uncomfortably high. Inflation rates have picked up in developed nations, too, including the United States. But still-high levels of unemployment have held down labor costs in the developed economies, and inflation rates seem likely to retreat to levels that will be at or below what’s desirable.

Economic conditions in our trading partners influence our own. The weak recoveries in Europe reduce demand for our exports. The strength in the emerging world has been a key factor in pushing up the price of oil and, in turn, gasoline and other types of fuel, which means we have less income to spend on non-energy goods and services. Should further large and sustained increases in energy prices threaten to raise overall inflation beyond a desirable level, the Federal Reserve will need to withdraw monetary stimulus more aggressively than it had planned.

How are we doing, then? The U.S. economy as a whole is recovering, but that recovery is not broadly shared — at home or abroad.

Karen Dynan is vice president and co-director of the Brookings Institution’s economic studies program. Domenico Lombardi is a senior fellow at Brookings. Alan Berube is a senior fellow and research director of Brookings’s metropolitan policy program.

To see the numbers, click here.