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September 30th, 2010

Will we eventually recover, or is this the new normal?

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A new survey suggests that a growing number of Americans believe that the economy won’t return to pre-recession levels for years to come:

Fifty-nine percent of Americans feel “not good” or “bad” about the direction the economy is headed, up from 49% in May.  And 76% don’t expect their quality of life, including their spending levels, to return to pre-recession levels until 2012 at the earliest, up from 63% who said that in May.  That’s according to the findings of a survey released today by AlixPartners LLP, the global business-advisory firm.

The poll also finds that 74% of Americans feel the same or worse today about their personal economic situations versus a year ago, up from 71% who had that negative sentiment in May, and, in what could be a sign of either growing discontent or growing resignation in the run-up to the November elections, just 30% of Americans said that Democrats’ losing control of the U.S. House or even of the U.S. House and Senate would have a substantially positive impact on the economy in the coming year.

The sentiment expressed in the AlixPartners survey directly correlates with the Consumer Confidence numbers that were released earlier this week:

“September’s pullback in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook,” said Lynn Franco, director of the Conference Board’s consumer research center.

“With so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months,” she said in a statement.

Still on the bottom…or the “new normal”?

I’m sure by now that many of you have heard the phrase, the “new normal.” While some are still waiting for current economic conditions to return to their “pre-recession” levels (as expressed in the survey), others have determined that the economy may never return to those levels, thus we must begin to recalculate our expectations for recovery and even view the current state of the economy as the “new normal.” Earlier this month I wrote a post that discussed exactly that.

In the post, Paul McMorrow, associate editor of CommonWealth magazine and a Boston Globe columnist, said that the low levels of home sales we’re currently experiencing aren’t something that should necessarily shock or even scare us.

Plain and simple: McMorrow says that the lending practices that led to the bubble are no longer in place, so it stands to reason that, as long as they aren’t, home sales and homeownership rates are unlikely to return to what they once were.

What does the Fed say? (emphasis added)

Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives; most expected the convergence process to take no more than five to six years.

READERS: Are you willing to accept that today’s economic conditions represent the “new normal,” or are you still confident that economic factors such as home prices, home sales and employment will return to where they stood before the “Great Recession”?

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4 Responses to “Will we eventually recover, or is this the new normal?”

  1. Lancy Blatt Says: October 1st, 2010 at 6:05 am

    Do you think the U.S. can approach an economic disaster? If yes, what can or should the administration and Congress do to avoid it?

  2. Mitch Says: October 2nd, 2010 at 10:12 pm

    I think things will return to where they are, but it will be more because of the cost of living than the net worth driving prices there. What I don’t believe is that all those jobs that were lost are coming back. We have to face the reality that it just costs too much for most industries to build stuff here, so they’re going to continue shipping things elsewhere.

    This means one of two things; either we start developing technology here that can employ a lot of people or there will be tons of small businesses with people offering services at lower rates so that everyone has a chance to participate, like plumbers and electricians.

  3. Tim Manni Says: October 5th, 2010 at 12:01 pm

    Lancy,

    We’re already mired in one! If the question is “do I think the US can handle another?”…well, that’s a whole new ballgame. I’m not too confident at this point. However, I think we’re much more prepared.

    Thanks for your comment,
    Tim

  4. Tim Manni Says: October 5th, 2010 at 12:11 pm

    Mitch,

    I can’t say I disagree with you. It seems that we’re so unwilling to pay higher prices to retain American-made goods. That’s kind of sad don’t you think? No one want to pay higher costs, but this country has a rich history at producing quality goods.

    Good hearing from you, sorry it has taken me a few days to respond. Thanks,
    Tim

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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