Four Years Into Recovery, Are We Well Yet?

By Marilyn Geewax

Published July 3, 2013 at 11:55 AM EDT

Jeff Caldwell checks a vehicle on the assembly line at the Chrysler Jefferson North Assembly plant in Detroit in May. U.S. auto sales rose last month to their fastest pace since 2007.

The next couple of days will bring fireworks, hot dogs — and a new unemployment report.

At least the first two will be fun.

As for Friday's job-market assessment, the Labor Department report likely will show little or no change in the 7.6 percent unemployment rate. "There is still a general weakness in the labor market," says Daniel North, economist with Euler Hermes, a credit insurance company.

North estimates that employers added about 160,000 jobs in June, matching what most other economists are forecasting. Those forecasts may tick up a bit Wednesday because ADP, a company that tracks payroll data, said that in June, private companies hired 188,000 workers, somewhat more than expected.

But once private job gains are combined with government job cuts, the overall employment trajectory is in line with what economists have been seeing throughout the recovery: slow progress. Since late 2010, U.S. employers have been adding an average of 175,000 jobs per month.

"That's well below the 250,000-jobs-a-month pace that we need to really be growing," North said. "We're just running in place."

Unfortunately, North's dreary assessment could sum up the entire recovery, which began exactly four years ago. The economy, which had been in free fall in late 2008, hit bottom in June 2009. Then in July of that year, growth resumed.

But the pace of job creation has been slow since then. Nearly 12 million people remain out of work, and wages have been barely growing.

"It's still a very sluggish recovery," said IHS Global Insight U.S. economist Paul Edelstein. In fact, "the economy is permanently smaller — about 10 to 15 percent below where we would be if we hadn't had a recession."

Will it ever get really good again?

Edelstein says the forecasting firm expects to see faster growth in this year's second half. But then again, "we've said that before — and every year, we keep being disappointed."

Growth has averaged roughly 2 percent every year since the end of the Great Recession, which lasted from December 2007 to June 2009. U.S. employers would need to create 8.5 million jobs to get back to the labor market conditions of late 2007.

Here's the problem: When the housing bubble burst, it started a chain reaction, with people losing homes and jobs at a frightful pace. Financial markets froze up and stock prices plunged, along with prices for homes and other assets.

To reverse such a negative shock, growth needed to spike up in an equally dramatic fashion. But it never did.

The Federal Reserve Board's policymakers tried to help by slashing interest rates. Now they are making plans to s-l-o-w-l-y allow the record-low rates to rise to more historically normal levels.

For example, last year, the interest rate on a 10-year Treasury note was about 1.5 percent. Now it's around 2.5 percent, which is still quite low — about the same as during the Great Depression.

And last year, fixed 30-year mortgage rates were hovering around 3.5 percent; now they are back up to around 4.5 percent; but that is well below historical levels.

The rate upticks reflect rising confidence. Fed officials think the demand for borrowed money — for homes and business expansions — is accelerating.

But higher borrowing costs can make life even tougher for those who still can't find a job or get a raise. Many industry sectors continue to struggle.

Here are a few of the winners and laggards in today's economy:

WINNERS

Autos: U.S. automakers were hit so hard by the recession that they needed government help to survive. Now their monthly selling rate is back up to the fastest pace since December 2007.

Technology:Tech companies have been on a hiring binge, sending the unemployment rate for tech professionals down to 3.5 percent. In the first quarter of 2013, technology consulting companies alone added 17,000 workers, according to a report by Dice, a career-posting site.

Energy: U.S. energy output is growing because of the surge in oil and natural gas production. Employment in the oil and gas sectors increased by 155,000 jobs, or by 11 percent, between 2009 and 2012.

STRUGGLERS

Housing:The crushing recession pushed down home values by more than a third. In the past year or so, prices have been moving up sharply, but the overall level remains depressed compared with a decade ago. And now that interest rates are rising, some economists expect sales to cool a bit.

Banking:Banks are trying to bounce back from the mortgage meltdown, but still are coping with slow growth, low interest rates and lower fee income.

Airlines:Airlines tried to survive the recession by using several strategies, including filing for bankruptcy, merging and imposing fees. Now they are squeaking out small operating profits, but still face high costs for fuel, labor and maintenance.