Issue of the week: Why the recovery is stalling

“Double dip, here we come,” said Colin Barr in Fortune.com. Anemic growth, plummeting consumer confidence, and the glacial pace of job creation has many analysts fearing we could be heading into recession again, even though many jobless Americans never noticed that the last one formally ended two years ago. Gary Shilling, “one of the few people who saw the housing bust and financial crisis coming years before they happened,” predicts that the next downturn will occur in 2012, said Howard Gold in MarketWatch.com. One of the reasons for his pessimism is that the jobs picture is “nowhere near what we’ve had in past recoveries.” When employers hire at all, “it’s often on a part-time or temporary basis.”

One big difference this time is the lack of government hiring, which tends to “blunt the bleeding of the private sector” during downturns, said Morgan Housel in TheMotleyFool.com. Since 2010, the public sector has cut nearly half a million jobs, particularly at the state and local levels, because of “plunging tax receipts.” Add those job losses to the steep declines in manufacturing, construction, and retail, and you can see why “most respected economists don’t see employment hitting pre-recession levels until 2014 at the earliest.”

The private sector should be the engine of hiring, but it’s holding back because of “scant demand,” said Phil Izzo in The Wall Street Journal. When asked in a recent survey to name their single biggest business problem, 24 percent of employers cited poor sales; that’s higher than during all the recessions of the past two decades. Demand remains volatile. “Instead of good years, it’s like you have a good month—or a good three months,” said Daniel Cunningham, head of an Ohio metal manufacturing company.

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Let’s face it, said David Leonhardt in The New York Times: The “old consumer economy is gone, and it’s not coming back.” For years, American consumers relied on debt to finance the houses, cars, and big-ticket items that they wanted but couldn’t afford. Now we are “feeling the deferred pain from 25 years of excess.” Businesses won’t hire because “they do not know when their customers will fully return.” Like the rest of us, they need to get used to the idea that our old consumption-friendly ways may not be returning, because they “depended on income people didn’t have.” The sooner we acknowledge this “great consumer bust” and move back toward production and investment, the sooner we can halt our “stop-and-start economic malaise.”