MAUI — The U.S. gross domestic product has returned to early 2008 levels after three long years, but it’s still not where it should be according to Byron Gangnes, University of Hawaii economics department chair.
Gangnes explained that financial crisis-related recessions often do take about three years to recover so the slow going has not been that surprising. Other types of recessions typically take just a year to recover.
In particular when a housing bubble bursts, consumers’ feeling of wealth deteriorates and they deleverage all the debts they built up in the good times, restraining consumption. Consumer spending account for two-thirds of the economy, which is why credit unions and others are seeing a dearth of lending, Gangnes told more than 200 attendees of The Paragon Group’s Volunteer Leadership Institute.
Additionally there has been a slow restricting away from the bubble sector restricting unemployment improvement, and causing federal budget adjustments that have also affected the economy.
Unfortunately housing is often what pulls the economy up but since 2009 we’ve experienced “the lowest level of housing starts in recorded history,” which began in 1968, Gangnes said. However, homebuilders are becoming more optimistic which is a positive sign.
But it’s not all gloom and doom. After a plateau in the first and second quarters of 2011, the third quarter showed a solid increase in GDP and another is expected in the fourth quarter when those numbers come out, Gangnes said. Also, consumer confidence has gone up. “That’s good news if you’re looking for consumers to pull us out of this slump,” he commented.
Still, 2012 being an election year could put a kink in the recovery. “Election season is going to make things even worse because you’re going to have a lot of talk about how bad the economy is,” Gangnes predicted. While weaknesses are easing, this plus potential Euro crisis spill over could push the U.S. into another recession, he concluded.