Posted on Thursday, January 13, 2011
Friday's report on the nation's unemployment situation had a little for the bulls and a little for the bears, when it comes to this nation's economic outlook for 2011. While the unemployment rate plunged in December to 9.4 percent from 9.8 percent, only half of the improvement came from Americans finding new jobs. The other half of the improvement came from discouraged workers exiting the labor force, which has the perverse impact of reducing the unemployment rate.
(It's a quirk of the strange calculus that goes into divining the nation's unemployment statistics.)
Only 103,000 new jobs were added to payrolls last month, well below market expectations and below the 150-200,000 jobs needed to keep up with population growth and growth in the labor force.
Indeed, Federal Reserve Chairman, Ben Bernanke, in testimony before a Senate committee, acknowledged that it could be four to five years before the labor markets return to "normal."
"Normal," as measured in historic terms, implies a 5-6 percent unemployment rate. There are some who suggest that our labor force never will return to "normal." But that view is unnecessarily pessimistic and belies the improvements being seen in the economy, each and every day.
By the way, a quick return to "normal" would imply that the economy would add about 600,000 jobs a month for over a year, which it rarely, if ever, has done. Absent such an immediate and stunning improvement in job creation, there is virtually no way the unemployment rate could get back to "normal" in less than a few years, under even the most optimistic scenario.
That does not mean we can't, or won't, see meaningful improvement in the labor market in the months, and years, to come, that will be felt by all.
Many on Wall Street and many, many more on Main Street, were understandably discouraged by the December report and the Fed chief's comments, as one might expect, given the grudging improvement in the jobs picture, even as enormous piles of cash build up on bank balance sheets and in corporate coffers.
But this worry about the economy is beyond misplaced, in my view. After a serious recession like the one we have just experienced, borne of an economy gone wild, it is a miracle that we have recovered as much lost ground as we have, compared to the alternative scenario many of us were contemplating only two short years ago.
Yet, there remain countless doomsayers who suggest that another, even more serious crisis, is just around the corner. Citing the possibility of a renewed credit collapse in Europe, a series of municipal bankruptcies here in the U.S., or another leg down in the housing market, they say we are just days, weeks, or months away from that dreaded "double-dip," or another downturn that will make the first phase of the "Great Recession" feel like a walk in the park.
My good friends, economist, Nouriel Roubini; author and investor, Nassim Taleb; hedge fund manager, Doug Kass; and banking analyst, Meredith Whitney, all repeat a mantra that remains in vogue among the gloom and doom jet-setters.
They claim that we are being falsely encouraged by recent economic statistics that create an illusion of recovery that is either being borrowed from future prosperity, or is the very temporary result of "recession fatigue," a condition that I never before have encountered.
In short, and for a variety of under-discussed reasons, they are flat-out wrong.
Few of the naysayers have bothered to incorporate into their overly pessimistic assumptions some truly miraculous developments that have taken place since Ben Bernanke's "great intervention," which prevented us from experiencing a catastrophic 1930s-style depression, or a protracted, Japanese-style stagnation.
Unlike those prior periods, the U.S. economy already has recovered ALL of the lost output since the start of the Great Recession.
• Third-quarter GDP stood at a record 14.7 trillion, eclipsing the peak hit in the third quarter of 2008.
• Retail and food sales, which surged 5.5 percent over the holidays, now stand at1.12 trillion, according to the Commerce Department -- just under the1.17 trillion peak hit in the 4th quarter of 2007.
• Consumers have driven down indebtedness, and added to their savings. The savings rate has jumped to 5.3 percent, while household debt-service burdens have been cut by228 billion.
• Auto sales are running at a 12.5-million-unit rate which, while below the 17-million-unit peak at the height of the economic recovery, is still three million more vehicles being sold than at the trough of the recession.
• Household net worth, after collapsing by a staggering17.5 trillion from 2007-2009, has rebounded sharply in the last several quarters... by nearly6 trillion, not a trivial sum. It remains well below its historic highs, but has improved significantly and likely will continue to improve over the next several years.
The statistics mentioned speak for themselves. In addition, market-based indicators, from stock prices to interest rates and commodity prices are, in tandem, forecasting improving future growth, not a return to recession. These indicators, when flashing the same signals simultaneously, rarely have delivered an errant forecast.
While many remain deeply concerned about the fragility of what might be the start of a self-sustaining economic recovery, there is real reason for optimism that, indeed, a true and lasting recovery is underway.
As I return to blogging for The Huffington Post, I despair over a political environment which has led us down a path that now goes beyond partisan politics, as of this past weekend, to one of a clear and present danger.
I also worry that far too many voices continue to prey on the financial fears of a society that has seen more than its share of problems and pain.
And, while I often have been described as a Cassandra, and rarely a Pollyanna, for the first time in many years, I see reason to rejoice in an economic recovery that, while uneven, appears to be gaining strength and durability every day.
If only our political situation would improve as much as our economic condition, I would hold even greater hope that happy days are, indeed, here again.
By Ron Insana, CNBC senior analyst, THE HUFFINGTON POST