The Great Recession has a big birthday coming up on Saturday. It should be the least joyous fifth birthday ever recorded.
It was five years ago in December that the recession began, according to the arbiters of these things at the National Bureau of Economic Research Business Cycle Dating Committee. It was adorable in those early months, when nobody was quite sure whether it would turn out to be a recession or not. The Bush administration and Congress enacted a cute little $152 billion stimulus plan to try to fight it. The Federal Reserve had long, heated debates over whether to cut short-term interest rates by a quarter percentage point or a half.
Ah. Those were the days.
And remember the cute little Bear Stearns bailout? That was in March of 2008, when our little recession was only three months old. We thought $30 billion was a lot of money, then.
By his first birthday, though, our little recession had gone from being an adorable little imp to a pusillanimous fire-breathing demon from hell. That fourth quarter of 2008 the U.S. economy shrank at an 8.9 percent annual rate. Many economists had viewed a collapse like that to be unfathomable. (The post-war record had been a 6.4 percent rate of decline, in 1982).
And yet here we are. Five years, $800 billion in fiscal stimulus, a $700 billion bank bailout, and $2 trillion and counting of quantitative easing by the Fed later, those days are an increasingly distant memory.
Still, a new number out Thursday morning shows why we’re still talking about the after-effects of this recession on its fifth birthday. In the July through September quarter, the U.S. economy grew at a 2.7 percent annual rate, the Commerce Department said Thursday—better than the 2 percent growth rate earlier estimated. That may seem like good news, but some of the details are disconcerting.
A big reason for the upward revision was that businesses built up their inventories more than had been earlier estimated. That suggests it is a one-time gain; if anything, that may point to weaker growth in the future, as firms try to let their inventories run down.
Federal government spending was a big part of the improvement, rising at a 9.5 percent annual rate (with particularly strong gains in defense spending). But that is sure not to be sustained; the most likely outcome of negotiations over the “fiscal cliff” is that federal spending will be a drag on the economy in the years ahead.
And business spending on equipment and software, which has been a driver of the recovery for the last three years, actually turned negative in the third quarter, falling at a 2.7 percent annual rate. It had earlier been estimated to be flat in the third quarter.
Reflecting those trends, forecasters are expecting a reversal in the fourth quarter; Macroeconomic Advisers expects GDP growth will be only 1.4 percent in the final three months of the year.
In other words, all these years later, the United States can’t manage to get any sustained growth much above 2 percent. Unemployment is 7.9 percent, and at the rate of growth we’re managing, there’s little reason to expect it to come down much anytime soon. Over the past five years, the population has risen and businesses have become ever more productive. Yet real economic output is only 2 percent above what it was in the fourth quarter of 2007.
Perhaps even scarier, the United States is a success story by the standards of the developed world. Spain and Greece are experiencing what can only be called a depression, and even the stronger European economies are likely in a new recession (The number of unemployed in Germany has risen for eight straight months, according to new data Thursday from the German government). The British economy has not had a meaningful recovery at all in the last three years; GDP growth has been essentially stagnant. British GDP is still below its levels five years ago.
So happy birthday, Great Recession. May your birthday cake be poisoned, its candles exploding, and after the party may you get hit by a truck.