Today's Most Popular Video
Aug 5, 2009 7:54 am US/Central
Good Question: How Long Until Economy Feels Good?
MINNEAPOLIS (WCCO) ―
After recession comes recovery. New numbers out Tuesday show our families started spending more money in June. Home sales and the stock market rebounded, too.
So when the economy turns around, how long will it take to recover?
"Yes, we'll be heading into a recovery. It may not feel that satisfying for consumers and employees," said John Gustavson, Junior Principal at LarsonAllen Financial in Minneapolis. "I think it's a multi-year workout."
The United States economy has been in recession since December 2007, and historically, economists talk about a "V" recovery. That's a recovery that takes as long as the decline.
"Sometimes it's a hockey stick, sometimes it's a rapid climb," said Kevin Upton, a professor at the University of Minnesota's Carlson School of Management. "Every time we've had a valley, the recovery has gone higher than the previous peak. Sometimes it takes longer like after the Depression, sometimes it's pretty rapid."
Gustavson said he has a different view of how things will go this time.
"I think history would tell you, the farther you fall, the greater the recovery. We're not convinced that's going to be the case," he said. "We came out of one of the biggest booms; that balloon is bursting. We are entering this period of what we think is new normal.
"The new normal will mean higher consumer savings rates, less use of debt, more government intervention, more regulation, and possibly higher income taxes," he added.
Even though economists may identify an end time for the recession, that doesn't mean that people are going to feel the benefits right away.
"Unemployment seems likely to continue to grow for some time because businesses are using this crisis to trim costs, reduce the labor force, and improve efficiency," said Upton.
Gustavson agreed, pointing to the "creative destruction" happening where poorly-run businesses are failing, and businesses that over-hired are trimming the fat.
"Even employed people have had their pay frozen or been asked to accept furloughs," said Upton.
The same is true with housing values, which have plummeted, compared to the values in 2007.
"History tells us housing has gone up about the rate of inflation, maybe plus one percent," said Gustavson, agreeing that recover could take anywhere from three to seven years.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
Letters To Santa Sent To Sex Offender?
Click to enlarge
Stumble It!
Reporting
