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by Jordan Green

MEET THE RECOVERY, (PRETTY MUCH) THE SAME AS THE RECESSION

The economic recovery, a term that probably deserves quotes, is looking like a win-lose proposition. A July 1 economic analysis by NC Bankers Association economist Harry M. Davis grimly predicts that the recovery for this recession “will not feel like a recovery for many households.”

It looks like a deadlock, with a number of factors mitigating against each other and preventing any kind of breakthrough.

For starters, Davis says, the rate of gross domestic product growth is likely to drop to about 2.5 percent in the second half of 2010. In contrast, GDP growth landed in the range of 4 to 6 percent after recent recessions. Weak GDP growth means unemployment across North Carolina will likely remain above 9 percent, Davis predicts.

Individuals and family heads of household are doing what is entirely rational in an economic climate in which wages are stagnant and the possibility of job loss cannot be ruled out: They’re squirreling away cash for a rainy day. Davis says households are decreasing debt levels and increasing savings, and last year saw the largest drop in household debt since 1945.

And the housing recovery is creeping along at a snail’s pace. Davis says new home sales in May set a record low pace. There’s a Catch-22 here, as Davis points out: “Housing cannot improve very much as long as the unemployment rate remains around 9 percent.”

Corporations and small businesses are in the same posture as households.

“Corporations are sitting on huge amounts of cash because they are not willing to invest in plant and equipment,” Davis writes. “The level of cash to assets is at the highest level since 1963 when the statistic began. Businesses of all sizes are concerned about future tax policy and are thus delaying hiring of new workers. Small businesses cannot get credit due to tighter lending standards which are being forced on banks by the bank regulators.”

And Davis estimates that states face a collective shortfall of $150 billion this year, cushioned by $25 billion in federal grants. That means that “public sector workers are now joining private sector workers in the unemployment line.”

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