Economist: U.S. Trying To Find 'Cruising Altitude'
GUY RAZ, host:
Last summer, we spoke with the economist Lakshman Achuthan about the state of the economy. He looks at leading indicators to predict what will happen in the next two quarters. And his prediction? The recession was over. He still believes that, even though he acknowledges it may not feel that way.
Mr. LAKSHMAN ACHUTHAN (Managing Director, Economic Cycle Research Institute): The big standout in the great recession when we compare it now that the dust has settled to other recessions is, by far, the loss of jobs.
On other - you know, on GDP and other measures, it's a severe recession like we saw in other post-war recessions. But the loss of jobs is off the charts. Half of the people who are unemployed or long-term unemployed, probably a good hunk of them are permanently unemployed. That is why it feels so bad. The other half of the unemployed are actually getting their jobs back much faster than in prior recovery.
And so there really are two groups of people coming out of this recession. One group: the long-term unemployed is being completely left behind by this recovery. And that is really weighing on the national psyche.
RAZ: Now, talking about psychological factors, the markets have lost most of the gains from this year just on the past few weeks. Are we seeing a market correction? And can that be a good thing?
Mr. ACHUTHAN: Well, you know, it can be a good thing if it's cutting out a little bit of the speculative aspect of it or the highly speculative aspect of it. The market is not the economy. We certainly are seeing a correction. The bigger question is, is it a more sustained cyclical downturn in stock prices?
The odds are leaning towards it is, because we have a cyclical slowdown in the growth rate of the economy. And that's a nuance that's important for listeners to understand. It's not a forecast of a new recession.
Just as a plane accelerates when it takes off, it then has to throttle back at some point when it reaches cruising altitude. It would be very unnerving if a plane accelerated all the way to its destination. In the same way, the economy, when it comes out of a recession is going very quickly.
It is totally normal that it throttles back. We will see as the year progresses if that throttling back means that we're going in for a new landing or simply attaining our cruising altitude.
RAZ: One last question for you, Lakshman.
Mr. ACHUTHAN: Yup.
RAZ: Paul Krugman, in a recent column in the New York Times, he talks about the possibility that we are about to enter a long period of slow growth and high unemployment, basically what happened in Japan in the 1990s.
Mr. ACHUTHAN: Mm-hmm.
RAZ: Do the indicators you're looking at suggests that is a possibility?
Mr. ACHUTHAN: The indicators themselves don't because they look forward only about two or three quarters and they're pointing to slowing growth, but no new recession. They will be consistent with what he said for the next few quarters. But I do take his point when I look at longer term patterns and business cycles.
The real struggle that we have is not with the next year, it's with the next decade, as Paul suggests, because our trend growth and expansions is getting softer and softer. The last expansion was the weakest expansion in the post-World War II period.
At the same time, the swings in the business cycle are getting larger. And so, this combination of larger swings in the business cycle and lower altitude virtually dictates more frequent recessions.
Every time you have a recession, the unemployment rate rises. We know the unemployment rate is close to 10 percent now. If it doesn't have enough time to get down to a more comfortable level before the next recession, we are in for uncomfortably high unemployment for a longer period of time.
RAZ: Lakshman Achuthan is managing director of the Economic Cycle Research Institute in New York. And he joined us from our bureau there.
Lakshman Achuthan, thanks so much.
Mr. ACHUTHAN: Thank you.
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