The Problem With A Slow-Growth Economy Although the recession ended two years ago, the economy is still stuck in the mud. Over time, weak growth can have an insidious effect on a country's prospects and options. Why a low growth rate is more than just a number.
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The Problem With A Slow-Growth Economy

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The Problem With A Slow-Growth Economy

The Problem With A Slow-Growth Economy

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It's MORNING EDITION from NPR News. I'm Steve Inskeep.


And I'm Mary Louise Kelly, in for Renee Montagne.

Here's the backdrop to a major news story this week.

INSKEEP: The story is the struggle to raise the federal debt ceiling. President Obama says he's seeking a long-term deal on debt spending and taxes. But Republicans have resisted the part about taxes.

KELLY: Now the backdrop, which is the struggling economy. Housing prices are still falling in many places. Jobs are still hard to come by. Economists say that over time, weak growth can have an insidious effect on a country's prospects.

NPR's Jim Zarroli has our first report in a series on what may become the economy's new normal.

JIM ZARROLI: This was supposed to be the year when the U.S. economy finally gained traction. Instead, it's stuck in the mud.

Alan Blinder is a former Federal Reserve Board member.

Mr. ALAN BLINDER (Former Member, Federal Reserve Board): The economy has been disappointing on the low side consistently for several months now, and that makes me, at least, and other people, worried that maybe this slow growth will linger longer than we now think.

ZARROLI: During the first quarter, the U.S. economy grew just 1.9 percent. China grew 9.7 percent.

Lakshman Achuthan of the Economic Cycle Research Institute says the weak growth is part of a pattern.

Mr. LAKSHMAN ACHUTHAN (Economic Cycle Research Institute): Ever since the mid-1970s, the pace of expansion has been stair-stepping down in every expansion, so that the last expansion was the weakest expansion on record on every count, including GDP and jobs.

ZARROLI: Achuthan says it's not clear why the trend is occurring. It might be demographics or globalization, but the implications are profound. Weak growth means fewer opportunities for U.S. companies.

Husco International makes components for hydraulic equipment. Many of its customers are in construction, so the past few years have been rough, says CEO Austin Ramirez.

Mr. AUSTIN RAMIREZ (CEO, Husco International): And it's hard to be optimistic, overly optimistic about the U.S. market.

ZARROLI: But Husco has survived in part by seeking business in emerging markets.

Mr. RAMIREZ: They're just building a lot of infrastructure. You know, China is investing a tremendous amount of money into roads and bridges and railroads. And to do that, they need construction equipment. And to build construction equipment, they need hydraulic components. It's the same story in India.

ZARROLI: When growth is weak, U.S. companies do less hiring. Alan Blinder says that wouldn't matter much if unemployment were already low.

Mr. BLINDER: But when you have 9 percent unemployment, that means you're sitting at the bottom of a deep hole, and you need to climb out. Two percent is not climbing at all. In fact, two percent is burrowing in slightly deeper.

ZARROLI: Blinder says the slow pace of hiring is especially bad for young people.

Unidentified Woman: Okay. And part of that can be done by this second exercise, which is called the Tell Me About Yourself exercise.

ZARROLI: At the Rutgers University career center, a counselor talks to a young woman about job interviews.

Richard White, who heads the office, says the job market for graduates is more challenging than it was a few years ago.

Mr. RICHARD WHITE (Director, Career Services, Rutgers University): Obviously, higher growth rate means, you know, more jobs, more choices, more offers.

ZARROLI: White says graduates sometimes have to settle for lower salaries and less-attractive jobs than they once did.

Mr. WHITE: If you look over the long haul, starting behind - particularly in an economy that is growing much more slowly than we all would hope - they may not catch up over time.

ZARROLI: Slow growth also makes it much harder for cities and states to repair their finances. Tax revenues fall, and the cost of social safety-net programs soars.

Lakshman Achuthan says even with moderate growth, the economy will recover over time. Growth wasn't strong in the 1990s, he says, but the expansion lasted a long time, and unemployment eventually fell to near-record lows.

Mr. ACHUTHAN: Two percent's not bad if you can get 10 years of it. It's really bad if you only get a couple years of it, and that's the real challenge here.

ZARROLI: But achieving that kind of stable growth means avoiding recessions, and that won't be easy. In the meantime, a public that's lived through the booms and busts of the last two decades may have to learn to live with diminished expectations.

Jim Zarroli, NPR News, New York.

KELLY: This afternoon on ALL THINGS CONSIDERED, NPR's John Ydstie continues our series on the economy, The New Normal.

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